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ttBRARV 

OF  THE 

UMVERSflV  Of  II4JN0I8 


W.  D.  FORBES,  DES  MOINES,  IOWA. 

W.  D.  Forbes  has  been  president  of  the  National  Organiza- 
tion of  Mutual  Insurance  Companies  from  its  beginning  and  has 
been  prominent  in  Mutual  Insurance  work  for  thirty-five  years. 
He  is  a man  of  great  energy  and  ability  as  an  organizer  and  ad- 
ministrator. His  devotion  to  the  cause  of  Mutual  Insurance  has 
never  wavered;  and,  although  still  in  the  flower  of  a vigorous 
manhood,  he  has  lived  to  see  his  fondest  hopes  realized  and  even 
far  exceeded  by  the  measure  of  success  achieved. 


MUTUAL  INSURANCE 
MANUAL 


A HAND  BOOK 


C.  F.  MINGENBACK,  Chairman  of  Committee. 
S.  G.  MEAD,  Compiler. 


1906 

McPherson,  Kansas, 


MANUAL  COMMITTEE 


C.  F.  MINGENBACK,  Chairman 

S.  G.  MEAD,  Compiler 

Authorized  by  the  National  Association  of 
Mutual  Co-operative  Fire  Insurance  Com- 
panies to  issue  this  Hand  Book  of  Mutual 
Insurance. 


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\ 


CONTENTS. 

PAGE 

EXPLANATORY  AND  HISTORICAL  - - 17 

WHAT  THE  MUTUALS  MUST  DO  - - 22 

CO-OPERATION,  WHAT  IT  IS  - 37 

COMPARISONS 47 

IMPORTANT  STATISTICS  71 

THE  ECONOMIC  VIEW  -----  79 
WHAT  IS  INSURANCE  - - - 86 

THE  AGENT 97 

ASSESSMENTS 151 

ASSETS,  RESERVES  AND  SURPLUS  - - 171 

ADJUSTERS  AND  ADJUSTMENTS  - - 185 

OVER  INSURANCE  -----  214 

CLASSIFICATION  OF  RISKS  - 234 

THE  POLICY  AS  A CONTRACT  - - 277 

CANCELLATION  OF  POLICIES  306 

CLASS  MUTUALS 311 

STATE  FIRE  MARSHAL  - 333 

LIVE  STOCK  INSURANCE  - 363 

HAIL  INSURANCE 373 

WIND  STORMS,  CYCLONES,  ELECTRICITY, 

STORMS,  THEIR  CAUSE  - - - 400 

INSURANCE  FUNDS 410 

NEW  ENGLAND  FACTORY  MUTUALS  - 415 

THE  PHILADELPHIA  CONTRIUTIONSHIP  - 429 

MISCELLANEOUS  MATTERS  - 440 

LAWS  AND  COURT  DECISIONS  - - 448 

THE  STATE  AND  THE  MUTUALS  - - 460 


8 1 0783 


INDEX 


Acetylene,  258 
Aetna  Insurance  Co.,  61 
ADJUSTERS,  184,  305 
Qualifications,  185 
Avoid  Tricks,  189 
Bribery  Case,  187 
Agents  should  not  act,  315 
ADJUSTMENTS,  190 

Farm  Buildings,  190,  272,  273 
Country  Stores,  190 
Dishonest,  192 
Actual  experience,  193 
Common  Case,  195 
Cost  of  Buildings,  198 
Methods  of  Estimating,  199 
Depreciations,  275 
AGENTS 

Qualifications,  97,  99,  107 
Country  farmers,  98 
Transactions,  Binding 
When,  99 

Laws  Concerning,  100,  140 
Decisions,  100 
Neglect  by,  101 
Responsibility,  102,  103 
Certificates,  104 
How  Secured,  106 
How  Paid,  108 
Duties  in  Case  of  Loss,  112 
Talks  With  Tough  Custo- 
mers, 113 
Maxims,  144 
A Good  One,  231 
Should  Not  Adjust,  305 
Advertising,  148 
Anti  Compact  Law,  449 
ARBITRATION  AND  AP- 
PRAISAL, 208 
Cautions,  209 
Contested  Losses,  210 
Machinery,  212 
Over  Insurance,  215 
Armstrong,  F.  L.,  473 


Arson,  353 
Ashes,  244 
Ashes,  Wood,  262 
Axle  Grease,  262 
ASSESSMENTS 

Basis  of  Mutualism,  151 
State  Laws,  141,  153 
Valid,  152 
When  Levied,  155 
Advance,  157 
Proof  of  Service,  159 
Safe  Rule,  160 
How  Collected,  166 
Returned  Letters,  167 
Failure  to  Pay,  169 
Legal  Notice,  158 
Atkinson,  Edward,  415 
Factory  Mutuals,  415,  510 
Atlanta  Address,  420 
Baltimore  Fire,  55 
Blackman,  Clawson,  58 
Bridgens,  N.,  193 

Brokerage,  138 
Cellars,  245 
Census,  The,  47,  49  50 
Circulars,  Scurrilous,  47 
Chimneys  and  Flues,  241 
Cities  and  Towns,  266 
CLASS  MUTUALS,  311 
Retail  Lumber,  313,  316 
Retail  Hardware,  321,  322 
Retail  Hardware,  list  of,  326 
Retail  Druggists,  329 
Plate  Glass,  330 
See  also  Hail,  Live  Stock,  etc. 
Co-Insurance,  440 
Coal  Oil,  254 
Coffin,  E.  M.,  453,  473 

Collins,  C.  S.,  220,  462 

Comparisons,  47 
Conflagrations,  28,  251 
Contract  Valid,  293 
Constructions,  Bad,  248 


6 — 


OF  MUTUAL  INSURANCE 


7 


Construction,  Better,  356 
Comributionship,  49,  61,  429 
Early  Method,  430 
Modification,  431 
CO-OPERATION 
What  it  is,  37 
Successful,  27 
An  Old  Theory,  37 
Not  a Sentiment,  38 
Not  Socialism,  42 
Not  Profit  Sharing,  42,  95 
Methods,  45 
Must  be  Honest,  45 
Counterfeit  Mutuals,  63 
Cyclones,  400 
Dearth,  Supt.,  53,  386,  488 
Economic  Theories,  79 
Electricity,  400 
Electric  Lighting,  259 
“Failed  Mutuals,”  47,  57,  63 
Fighting  Fire,  360 
Fire  Marshal,  227,  333 
Inspection  by,  345 
Forbes,  President,  54 
Franklin,  Benjamin,  49 
Fraternalism,  Must  be  Hon- 
est, 83 

Gas  and  Gas  Machines,  256 
Gasoline,  252 
Gasoline  Permit,  252,  291 
Gas,  Natural,  259 
Goodsheller,  V.,  367 

HAIL  INSURANCE,  369 
Climate,  374 
Plans,  377,  389 
Commissioner  Dearth,  386 
Statistics,  393 
Valuation  of  Crops,  397 
Hay,  261 

Hazardous  Risks,  264 
Heating  Apparatus,  267 
Host,  Commissioner,  55 
Hyatt,  W.  R.,  467 

Illegitimate  Losses,  370 
Indemnity,  90,  133,  138 


Insulation,  407 
Insurable  Interest,  290 
Inspection  by  Firemen,  245 
Insurance,  Co-Operative,  92 
Insurance  Funds,  410 
Insurance  Year  Book,  65 
Lamps,  255 

Laws  and  decisions,  448 
Liabilities  of  Members,  443 
LIVE  STOCK,  363 
Proof  of  Loss,  365 
Particulars  Required,  368 
Illegitimate  Losses,  370 
Loan  Companies,  174 
Losses,  112,  302 
McManima,  J.  C.,  18,  492 

Machinery,  Farm,  275 
Manual  Authorized,  17 
Scope  Widened,  19 
Martin,  F.  J.,  18,  67,  71 

Matches,  243 
Mutuals  the  Oldest,  49 
Mohler,  J.  D.,  495 

Natural  Gas,  259 
Nowlin,  H.  L.,  475 
O’Brien,  Supt.,  490 
Osgood,  E.  S.,  495 

Over  Insurance,  215 
Permanent  Fund,  486 
Photographic  Views,  206 
Plate  Glass,  330 
POLICY  as  a Contract,  277 
Standard,  280 
Delivery,  291 

Conflict  With  Application,  294 
When  Delinquent,  295 
Rights  Waived,  297 
Cancellation,  306 
Preventable  Fires,  270 
Railway  Fires,  203 
Re-Insurance,  138,  441 
RESERVES,  171 
Aid  to  Loans,  174 
How  Accumulated,  177 
How  Invested,  179 


8 


A HAND  BOOK 


How  Large,  178 
Safe,  183 

Retail  Lumber  Insurance 
Companies,  313,  316 
Retail  Hardware,  321,  322,  326 
Retail  Druggists,  329 
Returned  Letters,  167 
Reward  for  Incendiaries,  229 
Safety  Limit,  445 
Salvage,  202 
San  Francisco  Fire,  16 
Sentiment,  207 
Smith,  J.  Somers,  Jr.,  439 
Shiel,  A.,  494 
Short  Rate  Table,  307 
SPONTANEOUS  COMBUS- 
TION, 260,  262 
Hay,  261 
Oil  Shades,  261 
Ashes,  Wood,  262 
Axle  Grease,  262 
State,  Duties  of,  446 


Strange,  A.  T.,  476 
Stoves,  243 
Subrogation,  442 
Swallow,  J.  A.,  476 

Taxation,  446 
Technicalities,  to  be  Avoid- 
ed, 201 

Telephone  Wires,  407 
Tenant  Farm  Risks,  263 
Three-Fourths  Value  Clause,  226 
Total  Loss,  What,  200 
Underwriters’  Review,  33,  62,  216 
Upham,  Roger  F.,  61,  482 

Vacant  or  Unoccupied,  204 
Valid  Contract,  293 
Valued  Policy  Laws,  216 
Waiver,  205 
Welch,  L.  R.,  206 
Wilkinson,  Commissioner,  66 
Windstorms,  400 
Zimmer,  John  F.,  390 


INDEX-  SECOND  DIVISION 

THE  STATES. 

Alabama,  Alaska,  Arizona,  Florida,  Louisiana,  Mississippi 
Montana,  Nevada,  New  Mexico,  North  Carolina,  South  Caroli- 
na, Utah  and  Wyoming  fnrnish  little  or  no  information.  Most 
of  them  have  no  mutuals. 


Arkansas,  141,  220,  462 
California,  463 
Colorado,  376,  463 
Connecticut,  141,  154,  444,  446 
Delaware,  222,  465 
Georgia,  461 
Idaho,  466 


Illinois,  61,  153,  473 
Indiana,  445 

Iowa,  64,  60,  63,  380,  393,  376, 
448,  476 

Kansas,  376,  444,  478 
Kentucky,  460 
Maine,  141,  153,  445,  480 


OF  MUTUAL  INSURANCE 


0 


Maryland,  56,  346,  481 
Massachusetts,  153,  178,  221,  224, 
351,  444,  445,  4S2 
Michigan,  487 
Minnesota,  53,  60,  102,  142, 

223,  378,  386,  393,  449,  488 
Missouri,  491 
Nebraska,  221,  383,  390,  393, 

453,  495 

New  Hamshire,  221,  444,  497 
New  Jersey,  153,  445,  498 
New  York,  63,  56,  68,  60,  63, 

77,  102,  600 

North  Dakota,  376,  600 
Ohio,  223,  341,  347,  600 


Oklahoma,  376,  501 
Oregon,  501 

Pennsylvania,  65,  60,  604 
Rhode  Island,  506 
South  Dakota,  376,  507 
Tennessee,  461 
Texas,  508 
Vermont,  155,  509 
Virginia,  461 
Washington,  55,  445,  510 
West  Virginia,  222,  461 
Wisconsin,  65,  222,  376,  393, 
445,  611 
Wyoming,  446 


PREFACE 


\ 

The  preface,  the  “prefatio,”  the  “ first  sayings,”  is  prob- 
ably so  called  because  it  is  never  written  until  the  rest  of  the 
book  is  finished.  And  so  in  accordance  with  the  moss  covered 
custom  we  put  our  last  words  at  the  beginning. 

And  first  of  all,  let  us  acknowledge  our  obligations  to  the 
enthusiastic  Mutual  men  who  have  so  kindly  aided  us  in  our 
labors,  and  without  whose  assistance  and  measure  of  success 
would  have  been  impossible. 

“ First  among  his  equals’ ’ is  W.  D.  Forbes  of  Omaha, 
Nebraska,  the  efficient  president  of  the  National  Organization. 
Peculiarly  fitted  by  experience  and  by  position,  he  has  fur- 
nished us  with  much  valuable  material,  has  criticized  and  cor- 
rected our  work,  and  in  many  other  ways  has  rendered  valuable 
service. 

The  legal  adviser  of  the  National  Organization,  Hon.  E. 
M.  Coffin  of  Lincoln,  Nebraska,  the  foremost  Mutual  insurance 
lawyer  of  the  country,  has  kindly  taken  time  from  his  own 
pressing  affairs  to  furnish  us  with  legal  information.  The 
brief  printed  in  the  account  of  the  State  of  Nebraska  is  his, 
and  while  of  special  value  to  that  state,  enunciates  principles 
and  quotes  authorities  which  will  be  applicable  everywhere. 
For  this  and  many  other  favors  the  Committee  are  under  great 
obligations. 

In  the  “New  Northwest”  in  far  off  Washington,  the  Com- 
mittee found  a statistician  of  pre-eminent  ability,  F.  J.  Martin 
of  Seattle.  His  table  of  comparative  statistics  is  the  most 
important  in  this  line  ever  published  and  adds  greatly  to  the 
value  of  the  Manual. 

10— 


OF  MUTUAL  INSURANCE 


11 


Coming  a little  nearer  home  it  is  with  sadness  that  we 
refer  to  the  brilliant  and  scholarly  Chas.  Grissen  of  McMinn- 
ville, Oregon.  Uniting  in  himself  the  polish  of  the  scholar,  the 
energy  of  the  business  man,  and  the  urbanity  of  the  gentleman, 
his  future  seemed  spanned  by  a bow  of  promise.  But  the  wis- 
dom of  Providence  planned  differently  and  he  passed  away 
March  28,  1906. 

To  M.  G.  L.  Roberts  of  Chattanooga,  Tennessee,  the  Com- 
mittee also  return  their  thanks  for  his  earnest  efforts  to  obtain 
statistics  of  many  skates  for  which  they  were  unable  to  get  any 
information  whatever. 

W.  B.  Linch,  for  many  years  secretary  of  the  National 
Organization,  has  rendered  the  Committee  aid  which  is  appre- 
ciated. He  was  never  so  busy  that  he  could  not  stop  to  give 
us  needed  information  at  once. 

J.  J.  Furlong  of  Austin,  Minnesota,  has  hunted  up  much 
very  useful  matter.  If  there  is  a good  thing  in  Minnesota  Mr. 
Furlong  knows  just  where  it  is  and  just  how  to  get  it.  The 
Manual  is  the  better  for  his  kind  assistance. 

C.  S.  Collins  of  Little  Rock,  Arkansas,  has  written  an  ex- 
cellent account  of  the  conditions  in  his  state.  The  Committee 
and  the  readers  will  appreciate  this. 

James  A.  Swallow  of  Shenandoah,  Iowa,  has  a claim  for 
thanks  for  valuable  contributions  along  general  and  special 
lines.  His  matter  is  thoroughly  practical. 

John  Weyer  of  Cincinnati,  Ohio,  sent  us  an  excellent  ac- 
count of  the  Retail  Drug  Mutual  Insurance  business.  It  will 
be  appreciated  by  the  readers  of  the  Manual. 

The  Committee  are  under  obligations  to  Marshall  Cushing 
of  New  York  City  for  a copy  of  the  report  of  the  transactions 
of  the  National  Association  of  Manufacturers,  a pamphlet  of 
very  great  practical  usefulness. 

0.  W.  Tefft  of  Greenwich,  New  York,  sent  us  reports  of 
his  company  and  other  valuable  information. 


It 


A HAND  BOOK 


J.  Y.  M.  Swigart  of  Lincoln,  Nebraska,  has  ever  been  ready 
with  counsel  and  advice  and  in  many  ways  has  materially  aided 
the  progress  of  the  work. 

J.  T.  McGavock  of  Waterford,  Virginia,  has  given  us  an 
account  of  conditions  in  his  vicinity.  His  experience  very 
nearly  duplicates  that  of  Mr.  Roberts,  but  it  will  not  be  his 
fault  if  there  is  not  a change  for  the  better  very  soon. 

From  J.  Somers  Smith,  Jr.,  the  secretary  of  the  oldest  and 
strongest  Mutual  in  the  United  States,  “The  Philadelphia  Con- 
tributionship  for  the  Insurance  of  Houses  from  Loss  by  Fire,” 
the  Committee  have  received  several  historical  documents  and 
also  much  other  information  which  is  intensely  interesting. 
For  this  they  acknowledge  their  indebtedness  to  Mr.  Smith. 

J.  C.  McManima  of  Springfield,  Missouri,  has  made  the 
Committee  his  debtor  by  kind  notices,  reviews  of  manuscript, 
etc.  A.  Shiel  of  Burlington  Junction,  Jesse  D.  Mohler  of  War- 
rensburg  and  E.  S.  Osgood  of  Mendon,  in  the  same  state,  also 
deserve  credit. 

Mrs.  M.  A.  Leekly  of  Perry,  Oklahoma,  has  kept  the  Com- 
mittee informed  as  to  the  progress  of  matters  in  that  section 
of  country.  She  is  transforming  matters,  and  under  her  leader- 
ship, Mutual  Insurance  is  coming  to  the  front  in  Oklahoma. 

James  Miller  of  Elizabeth ville,  Pennsylvania,  has  laid  the 
Committee  under  obligations  for  many  valuable  hints  drawn 
from  his  experience  of  nearly  forty  years. 

To  J.  L.  Fowle  of  Ionia,  and  J.  E.  Taylor  of  Belding,  Michi- 
gan, the  Committee  are  indebted  for  an  account  of  conditions 
in  Michigan,  and  also  for  hints  which  they  found  useful  in  the 
body  of  the  work. 

From  Illinois,  A.  T.  Strange  of  Walsh  ville  and  C.  M. 
McMillan  of  West  Point  have  sent  excellent  accounts  of  their 
state. 


OF  MUTUAL  INSURANCE 


13 


In  Kansas  the  Committee  have  found  such  hosts  of  friends 
that  they  cannot  find  space  to  mention.  They  can  only  mention 
R.  M.  Scott  of  Pittsburg,  the  writer  of  the  able  article  on  the 
State  Fire  Marshal. 

From  New  England  the  Committee  have  received  many 
favors.  Hon.  Roger  F.  Upham  of  Worcester  has  re-written  his 
mangnificent  article  on  Mutual  Underwriting  in  Massachusetts; 
Hon.  Edward  Atkinson,  now  gone  to  a good  man’s  reward,  has 
sent  the  Committee  much  matter  of  very  great  value;  Col.  R. 
F.  Barrett  of  Concord,  Hon.  L.  R.  Welsh  and  Hon.  E.  L.  Saun- 
ders of  Worcester,  Massachusetts,  and  Fred  E.  Smith  of  Mont- 
pelier, Vermont,  have  given  the  Committee  full  information  re- 
garding the  other  states. 

Thanks  are  due  also  to  R.  A.  Hitchcock  for  generous  notices 
of  the  Manual  in  his  Mutual  Insurance  Journal. 

Also  the  Committee  wish  to  thank  M.  S.  Matthews  of  St. 
Paul,  Minnesota,  for  valuable  papers  and  letters.  0.  J.  Johnson 
of  Glenwood,  Minnesota,  has  given  his  experience,  a valuable 
favor  on  practical  lines. 

To  R.  J.  Young  of  Oelwein,  Iowa,  and  to  F.  D.  Babcock  of 
Ida  Grove,  Iowa,  the  Committee  are  indebted  for  hints,  circulars 
and  good  will  generally. 

J.  H.  Tinvoorde  of  Minneapolis,  Minnesota,  has  put  the 
Committee  under  obligations  in  many  ways. 

S.  R.  VanMeter  of  Marietta,  Ohio,  is  another  Mutual 
fighter  to  whom  the  Committee  are  under  obligations. 

From  Indiana,  R.  A.  Kirkman  and  Dr.  J.  Saunders  of  And- 
erson have  sent  information  which  cost  them  no  little  trouble, 
and  which  will  be  interesting  to  all  Mutual  men.  They  will 
accept  the  thanks  of  the  Committee. 

Scott  Rutledge  of  Des  Moines,  Iowa,  has  aided  the  Com- 
mittee with  information  and  support  for  which  the  Committee 
are  grateful. 


14 


A HAND  BOOK 


The  Zimmers,  J.  F.  and  P.  F.,  of  Lincoln,  Nebraska,  have 
sent  practical  information  on  hail  matters,  which  the  Committee 
consider  exceedingly  valuable.  They  will  accept  the  thanks  of 
the  Committee. 

The  Commissioners  of  the  several  states  have  invariably 
treated  the  Committee  with  courtesy.  When  they  had  the  infor- 
mation desired  it  was  furnished.  When  they  had  not,  an  ex- 
planation was  given.  The  readers  will  find  frequent  quotations 
in  the  body  of  the  work.  Especial  mention  is  due  to  Dearth, 
Host,  Wilkinson,  and  O’Brien. 

If  the  Committee,  in  the  rush  of  getting  out  these  last  few 
pages  have  omitted  any  one,  they  hope  that  this  paragraph  will 
be  accepted  as  an  apology  for  an  unintentional  error  of  omis- 
sion. 

In  finishing  the  work  the  Committee  wish  to  reiterate  one 
statement:  So  long  as  Mutual  insurance  is  furnished  at  cost, 
absolute  safety  is  guaranteed,  economy  is  practiced  and  bad 
risks  eliminated,  there  should  be  no  attempt  at  enforcing  uni- 
formity of  practice.  Each  Company  should  be  left  to  adopt  its 
details  to  its  environments.  State  supervision  should  demand 
safety  and  honesty,  but  go  no  further. 

The  Manual  will  serve  as  a starting  point  for  discussion. 
It  occupies  the  position  of  a motion  introduced  for  the  purpose 
of  getting  something  before  the  house. 

The  compilers  have  learned  much  themselves,  and  it  is  to 
be  hoped  that  the  work  of  correspondence,  comparison  and 
fraternal  consultation  will  go  on  for  all  time.  The  advance  of 
co-operation  is  the  progress  of  humanity.  And  one  service  of 
which  the  Committee  think  they  may  justly  feel  proud  is  the 
uniting  of  so  many  active,  intelligent,  patriotic  co-operators  in 
the  enterprise.  In  nearly  every  state  there  are  members  who 
have  aided  and  who  are  ready  to  help  in  anything  which  will 
further  the  cause. 


OF  MUTUAL  INSURANCE 


15 


All  this  information,  as  well  as  a valuable  collection  of 
correspondence,  reports,  pamphlets,  books,  etc.  is  the  property 
of  National  Association  and  available  for  future  use. 

The  Committee  had  set  their  mark  high,  but  after  two 
years  of  hard  work,  they  think  they  have  learned  something 
about  the  difficulties  of  the  task.  While  there  was  much  that 
was  inspiring,  there  was  also  much  that  discouraged.  The  in- 
cessant research,  the  thousands  of  letters  sent  out  without  even 
an  echo  of  a response,  the  drudgery  of  detail  during  two  long 
years,  sometimes  induced  despondency,  but  after  all  it  was  a 
labor  of  love.  The  compensation  and  the  difficulties  both  fell 
out  of  sight,  and  having  embarked  in  a good  cause  the  Com- 
mittee took  new  courage  and  persevered  and  here  the  conven- 
tion has  the  result. 

And  finally,  to  each  and  all,  officers  and  members  of  the 
National  Association,  of  State  Associations  and  of  local  Com- 
panies, who  have  been  so  kind  to  us,  we  offer  our  sincere  thanks 
and  we  hope  that  the  many  pleasant  acquaintances  which  we 
have  formed  in  the  course  of  our  work  may  continue  during 
future  years. 

Respectfully, 

C.  F.  MINGENBACK,  Chairman. 

S.  G.  MEAD,  Compiler. 


16 


A HAND  BOOK 


SAN  FRANCISCO. 

The  awful  catastrophe,  which  has  called  forth  the  sympathy 
of  the  civilized  world,  has  a lesson  for  Insurance  Companies 
and  for  policy  holders.  This  Manual  nowhere  includes  all  joint 
stock  companies  in  a sweeping  condemnation  so  far  as  their 
integrity  of  management  is  concerned,  and  in  this  case  it  is  a 
pleasure  to  say  that  out  of  the  wreck  and  the  crush  many  well 
managed  companies  have  come  unscathed.  They  have  lost,  but 
not  enough  to  injure  their  business  nor  their  credit.  For  them 
there  is  a place  in  the  world  which  they  may  fill  and  fill  honor- 
ably. 

But  there  are  others  which  seem  to  have  acted  more  as 
plungers  than  as  sensible  business  men.  Urged  on  by  greed, 
dazzled  by  immense  premium  incomes,  they  have  disregarded 
the  warning  voices  of  conservative  men,  they  have  gambled  in 
conflagration  risks,  they  have  wagered  more  than  their  holdings, 
and  they  have  lost,  and  the  innocent  share  holder  and  the  inno- 
cent public,  both  alike  suffer. 

Here,  then,  is  presented  a vivid  object  lesson  as  to  the 
difference  between  Mutual  and  Line  company  insurance.  The 
line  companies  with  their  reserve  of  sixty  million  lost  three 
hundred  millions,  and  many  are  wiped  off  from  the  face  of  the 
earth,  the  little  Mutuals,  with  their  reserve  of  twenty-five  to 
fifty  thousand  each  are  still  doing  business  at  the  old  stand, 
paying  dollar  for  dollar,  and  unlike  some  of  the  stock  companies 
which  advocate  an  immediate  advance  of  twenty-five  per  cent 
to  reimburse  for  losses,  the  Mutuals  will  continue  to  furnish 
safe  indemnity  at  the  old  rate; 


CHAPTER  I. 


EXPLANATORY  AND  HISTORICAL. 

The  idea  of  this  Manual  originated  with  a few 
earnest  Mutual  Insurance  men,  who  believed  that  the 
system  was  capable  of  better  results  than  were  being 
produced.  They  had  studied  the  merits  of  co-oper- 
ation and  were  filled  with  faith  in  the  possibilities 
yet  in  the  future.  There  was  an  active  and  vigorous 
National  Organization  and  in  every  state  where 
there  were  even  a few  Mutuals,  there  was  some  sort 
of  a State  Association.  The  membership  of  these, 
however,  was  limited  and  their  proceedings,  valuable 
and  instructive  as  they  might  be,  were  only  published 
in  pamphlet  form  and  were  soon  scattered  and  lost. 
There  were  no  statistics.  Not  a single  volume  could 
be  discovered  which  treated  Mutual  Insurance  as  a 
science  or  even  as  a system. 

Believing  that  this  state  of  affairs  might  be  bet- 
tered, the  National  Association  of  Co-operative 
Mutual  Fire  Insurance  Companies  of  the  United 
States,  at  their  meeting  at  Chattanooga,  May  5 to  9, 
1903,  appointed  a committee  to  prepare  a Manual 
for  the  use  of  the  Mutual  Fire  and  Storm  Insurance 
Companies  of  the  United  States.  The  following 
resolution  was  passed : 

“We  earnestly  recommend  that  in  the  near 
future,  in  some  manner,  this  association  publish  a 

2 —17 


18 


A HAND  BOOK 


Manual  on  Mutual  Insurance  and  that  a proper  com- 
mittee be  appointed  to  consider  and  report  to  the 
Executive  Committee,  and  with  such  Executive  Com- 
mittee to  act,  if  deemed  advisable.” 

At  the  same  meeting  the  following  resolution 
regarding  a statistician  was  passed,  after  a discus- 
sion of  the  subject  of  statistics: 

“ Resolved,  That  we  recommend  to  this  associ- 
ation the  appointment  of  a statistician,  whose  duty  it 
shall  he  to  furnish  at  each  annual  meeting  of  this 
association  such  statistics  as  complete  as  it  is  possi- 
ble to  compile  them. 9 9 

In  pursuance  of  these  resolutions,  C.  F.  Mingen- 
back  of  McPherson,  Kansas,  was  appointed  Chair- 
man of  the  Committee  on  Manual  and  F.  J.  Martin 
of  Seattle,  Washington,  Chairman  of  the  Committee 
of  Statistics,  each  being  given  power  to  choose  his 
own  assistants. 

The  Manual  Committee  was  afterward  enlarged 
by  the  addition  of  J.  C.  McManima  of  Springfield, 
Missouri;  F.  J.  Martin  of  Seattle,  Washington;  and 
the  compiler,  S.  G.  Mead,  of  McPherson,  Kansas. 
Owing  to  the  unexpected  pressure  of  personal  busi- 
ness affairs,  Mr.  McManima,  much  to  his  regret,  was 
unable  to  co-operate  with  the  other  members. 

The  Committee  on  Manual  at  once  entered  upon 
their  task.  As  the  mariner,  before  he  can  decide 
upon  his  course,  must  know  where  he  is,  and  so  takes 
an  observation,  the  Committee  believed  it  best  to 
begin  by  ascertaining  the  actual  and  present  status 
of  Mutual  Insurance,  and  commenced  investigation 
in  that  line.  State  reports  were  procured,  leading 


OF  MUTUAL  INSURANCE 


19 


Mutual  Insurance  men  were  written  to,  lists  of 
questions  sent  out  and  every  method  suggested  was 
used  to  forward  the  work.  In  almost  every  case  the 
Committee  received  encouraging  responses  and  the 
requested  information  was  always  cheerfully  fur- 
nished when  it  was  to  he  had.  New  sources  of  infor- 
mation were  suggested  and  the  aid  thus  rendered 
proved  most  valuable.  There  were  no  rebuffs,  but 
now  and  then  a company  seemed  to  think  best  to 
watch  the  progress  of  the  work  rather  than  to  commit 
itself  by  action,  assuming  an  attitude  which  has  aptly 
been  compared  to  that  of  a cat  inspecting  a lighted 
fire-cracker. 

It  soon  became  apparent  that  the  importance  of 
Mutual  Insurance  had  been  underestimated,  that 
both  in  numbers  and  in  amount  at  risk  the  Mutuals 
were  occupying  places  far  more  important  than  those 
usually  assigned  to  them,  and  that,  owing  to  the  mul- 
tiplicity of  interests  involved  and  the  varying  condi- 
tions, legal  and  other,  under  which  the  companies 
were  working,  more  ground  must  he  covered  than 
was  at  first  intended.  Accordingly,  at  a meeting  of 
the  Executive  Board  at  Omaha,  not  long  after  the 
appointment  of  the  Manual  Committee,  the  scope 
was  materially  widened  and  the  list  of  subjects  great- 
ly enlarged. 

Had  the  Committee  published  the  work  at  that 
time,  many  important  subjects  would  have  been 
passed  by  without  mention.  They,  therefore,  took 
the  responsibility  of  deferring  publication  and  bent 
their  energies  to  making  further  researches,  to  de- 
veloping subjects  of  great  importance  and  to  the  ac- 


20 


A HAND  BOOK 


cumulation  of  matter  unthought  of  when  the  Manual 
was  first  suggested  as  a hand  book,  and  it  is  because 
further  delay  is  undesirable,  and  not  that  they  have 
exhausted  the  subject  matter,  that  the  Committee 
send  the  book  to  press  at  this  time.  In  fact,  the  sub- 
ject is  inexhaustible.  This  book  is  but  the  first  of  a 
series,  expanding  and  developing  with  the  lapse  of 
time  till  the  Mutuals  shall  be  provided  with  a litera- 
ture of  their  own,  full,  complete  and  worthy  of  their 
cause. 

The  system  of  co-operation  is  firmly  intrenched 
in  this  country.  The  laws,  however,  are  not  always 
in  its  favor.  Some  Mutuals  are  obliged  to  adopt 
methods  which  they  would  not  use  were  they  not 
under  compulsion.  Other  Mutuals  still  have  grown 
up  in  isolation,  developing  their  methods  from  their 
own  experience,  others  again  have  been  obliged  to  fit 
their  practice  to  their  environments.  But  in  all  these, 
the  aim  and  object  has  been  to  furnish  Insurance  to 
the  members  at  cost,  and  this  they  have  accomplished 
in  the  face  of  opposition  and  in  spite  of  difficulties. 

What  the  Committee  hope  they  have  accom- 
plished is  the  presentation  of  a fair  representation 
of  Mutual  Insurance  as  it  is,  as  a basis  for  future 
discussion  and  future  action,  together  with  some 
hints  to  officers  and  members  as  to  how  to  accomplish 
the  best  results  under  present  circumstances. 

But  the  committee  do  not  offer  or  propose  any 
plan  of  uniformity.  This  is  not  possible  even  were 
it  desirable.  So  long  as  the  grand  principle  of  co-op- 
eration is  kept  steadily  in  view,  the  disposition  of 
technicalities  is  of  very  little  moment.  But  if  the 


OF  MUTUAL  INSURANCE 


21 


Manual  shall  be  of  service  in  the  way  of  stimulating 
thought  and  action,  if  it  shall  point  out  how  individ- 
ual companies  or  district  and  state  associations  may 
better  the  work  within  their  lines  or  how  they  may 
improve  external  conditions  by  securing  better  legis- 
lation, doing  away  with  prejudice  and  misconception, 
then  its  work  will  not  have  been  in  vain. 

No  one  can  know  better  than  the  Committee  the 
faults  of  the  work.  It  is  the  pioneer  in  the  field  and 
is  offered  as  a starting  point.  The  more  earnest  the 
discussion  of  its  statements  and  the  more  severe  and 
thorough  the  criticism  of  its  positions,  the  better  for 
the  general  cause  of  co-operation. 

And  to  the  Mutual  Insurance  public  the  Commit- 
tee respectfully  offer  this  book  hoping  that  it  will  be 
of  service  along  the  lines  indicated,  and  that  it  may 
aid  in  the  success  of  one  form  of  that  co-operation 
which  seems  to  he  our  best  defense  against  the  greed 
and  the  unscrupulous  methods  of  some  of  the  im- 
mense business  combinations  of  the  day. 


CHAPTER  II. 


INTRODUCTORY. 

WHAT  THE  MUTUALS  MUST  DO. 

It  is  incumbent  on  those  who  advocate  any  the- 
ory or  plan  of  action  to  prove  that  there  is  a reason 
for  its  existence.  This  proof  must  be  positive  and 
complete.  It  will  not  be  sufficient  to  show  its  harm- 
less nature,  for  while  it  may  be  free  from  evil,  it  may 
also  be  useless,  a mere  cumberer  of  the  ground.  Nor 
is  it  enough  to  show  that  it  produces  some  good  re- 
sults. The  proof  must  go  far  enough  to  establish 
the  fact  that  the  theory  or  plan  is  capable  of  produc- 
ing more  and  better  results  in  its  line  than  any  other 
offered  to  the  public.  Nothing  short  of  this  will  be 
acceptable.  To  state  it  in  different  language:  the 
plan  must  either  be  the  best  plan,  or  be  set  aside  for 
the  one  that  is.  This  is  one  of  the  fundamental  laws 
of  nature  and  is  the  keynote  of  human  progress,  for 
the  history  of  that  progress  is  but  the  account  of  the 
setting  aside  of  the  crude  and  imperfect  for  the  more 
finished  and  complete,  after  the  new  has  proven  its 
superiority. 

THEY  ACCEPT  THE  CHALLENGE. 

To  this  test  the  friends  of  Mutualism  gladly  ac- 
cede, And  if  they  cannot  prove  by  positive  and  irre- 
futable evidence  that  their  claims  are  correct  and 

22— 


OF  MUTUAL  INSURANCE 


23 


their  theories  and  methods  are  the  best,  they  will 
abandon  the  field.  The  advocates  of  Mutual  or  Co- 
operative Insurance  are  well  aware  that  in  accepting 
this  challenge  they  are  facing  the  opposition  of  the 
combined  power  of  capital  and  of  the  traditions  of  a 
distorted  political  economy,— distorted  for  the  same 
reason  that  theology  has  been  distorted  to  prove  the 
doctrine  of  the  divine  right  of  kings,  or  to  justify 
the  slave  owner  in  holding  human  beings  in  bondage, 
to  ease  the  consciences  of  those  whose  wealth  was 
acquired  by  the  exploitation  of  mankind.  At  this 
point,  let  it  be  said  that  the  mutuals  and  co-oper- 
atives wage  no  war  on  wealth  or  capital.  Honestly 
earned  and  legitimately  used,  wealth  is  a good  thing, 
both  for  its  possessor  and  for  the  community.  No 
fortune  can  be  too  large,  and  no  profits  too  great,  for 
the  public  good,  if  untainted  with  fraud  or  oppres- 
sion. But,  when  combinations  form  to  suppress  all 
competition,  when  corruption  enters  the  halls  of 
legislation  to  purchase  the  enactment  of  measures 
depriving  the  people  of  the  right  to  transact  their 
own  business,  and  to  make  it  easy  for  the  large  estab- 
lishments to  crush  out  the  small  ones,  then  wealth  is 
a curse  to  the  community  and  to  the  nation. 

The  mutuals  of  the  country  have  been  the  vic- 
tims of  attack  and  misrepresentation  for  many  years. 
This  has  gone  on  until  the  mere  continuous  repeti- 
tion of  the  statements  has  induced  many  to  believe 
them,  possibly  the  promulgators  themselves,  for  it  is 
said  that  when  a man  has  repeated  a lie  a sufficient 
number  of  times,  he  ends  in  believing  it.  The  effect 
of  this  continuous  and  persistent  misrepresentation 


24 


A HAND  BOOK 


lias  been  to  bring  the  mntnals  under  suspicion  and  to 
popularize  the  idea  that  a large  capital,  subscribed 
and  paid  up,  is  the  one  thing,  and  the  only  thing 
which  makes  an  insurance  company  safe,  and  that  all 
others  are  to  be  classed  as  wild  cats  or  visionaries 
to  be  avoided  by  men  of  good  common  sense  and 
ordinary  business  judgment. 

UNFAIR  ACTION. 

Capital  is  quick  in  forming  combinations,  bodies 
of  individuals  move  but  slowly.  Hence,  while  all 
insurance  was  originally  mutual  in  form  and  spirit, 
and  its  promoters  looked  only  to  the  general  inter- 
est, without  thought  of  personal  aggrandizement, 
companies  were  slow  to  combine  for  mutual  protec- 
tion and  mutual  help.  Each  occupied  its  own  limited 
field— limited,  for  there  were  but  few  to  be  insured — 
and  each  pursued  the  even  tenor  of  its  way  with  very 
little  desire  to  extend  its  borders.  But  capital  saw 
its  opportunity  and  organized  joint  stock  companies 
for  the  purpose  of  selling  indemnity.  In  this  there 
was  nothing  wrong,  nor  do  the  advocates  of  the  mu- 
tual system  object  to  it.  Fair  competition  is  never 
injurious.  But  not  all  was  fair.  Combination 
against  competition  began  to  develop  among  the  un- 
scrupulous of  the  old  line  companies.  Legislatures 
were  approached,  and  laws,  ostensibly  guarding  the 
rights  of  the  public  but  really  creating  monopolies 
for  the  joint  stock  companies,  were  smuggled 
through  in  almost  every  state.  It  is  doubtful  wheth- 
er most  of  the  legislators  fully  realized  the  intent  of 
the  laws  for  which  they  voted.  But  in  many  states, 


OF  MUTUAL  INSURANCE 


25 


when  those  who  desired  to  do  business  on  the  mutual 
principle  made  efforts  to  organize,  they  found  them- 
selves hampered  by  numerous  restrictions.  It  has 
been  remarked  that  in  several  states  the  laws  passed 
at  an  early  date  before  any  insurance  organizations 
were  thought  of,  looked  as  if  they  were  designed  in 
advance  to  shut  out  the  mutuals  entirely.  All  this 
put  the  mutuals  at  a disadvantage,  but  they  are  now 
making  a steady  and  successful  fight  against  this 
order  of  things,  and  are  occupying  the  ground  they 
never  should  have  lost.  That  the  joint  stock  com- 
panies resorted  to  such  tactics,  is  itself  a strong 
proof  that  they  felt  their  own  inability  to  cope  with 
the  mutuals  in  a fair  contest. 

THE  MUTUAL  SYSTEM  TRUE  TO  HUMAN  NATURE. 

The  mutual  or  fraternal  business  organization, 
is  more  in  consonance  with  true  human  nature  than 
any  other.  The  first  impulse  of  men  is  to  work  to- 
gether. That  the  selfish  will  try  to  take  advantage 
of  the  others  is  true,  but  it  is  also  true  that,  notwith- 
standing the  sneers  of  the  selfish,  this  fraternal  feel- 
ing is  well  nigh  universal,  while  greed  and  selfishness 
are  confined  to  the  very  few.  More  than  a century 
ago,  a cynical  philosopher,  after  a view  of  things  as 
they  were,  announced,  as  the  results  of  his  observa- 
tions, the  doctrine  that  every  man  is  “a  wolf  to  his 
f ellowmen. 9 ’ It  was  contradicted  at  once,  though  it 
describes  some  business  methods  of  that  day  with 
considerable  accuracy,  and  seems  to  state  correctly 
the  ethics  of  some  modern  corporations.  More  re- 
cently, an  article  justifying  their  practices  was  at 


26 


A HAND  BOOK 


once  condemned  as  “The  ethics  of  the  jungle.” 
Mutualism  opposes  all  this  pessimism  in  toto.  It  be- 
lieves the  doctrine  that  men  were  put  into  this  world, 
not  to  hurt,  but  to  help  each  other.  It  believes  that 
when  every  man  will  help  his  fellow  man,  then  every 
man  will  be  prosperous  himself.  It  repudiates  and 
scorns  the  fatalistic  theory  recently  advocated  in  a 
book  circulated  at  the  expense  of  one  of  the  great 
trusts  of  the  United  States,  that  modern  business 
methods  are  the  result  of  an  inevitable  and  necessary 
evolution,  and  cannot  be  avoided  or  evaded.  It 
believes  in  the  Sermon  on  the  Mount,  and  in  the 
Golden  Rule,  as  setting  forth  the  wisest  political 
economy,  and  the  best  business  methods.  It  believes 
in  helping  to  bear  one  another’s  burdens,  in  uniting 
to  help  each  other  and  at  the  same  time  in  leaving 
an  equal  chance  for  those  not  in  the  organization. 
This  is  its  first  argument.  It  is  never  directly  at- 
tacked. People  say,  in  a patronizing  way,  that  it  is 
idealistic,  visionary,  but  not  practical,  very  pretty, 
might  do  in  the  millennium,  etc.  To  all  this,  mutual- 
ism makes  answer  that  if  the  theoretically  true  can- 
not be  made  to  work  out  in  real  practice,  if  co-oper- 
ation is  true,  but  cannot  be  made  available  in  actual 
life,  then  this  world  is  a stupendous  failure,  and  the 
Creator  has  missed  his  aim  and  the  ideal  inhabitant 
of  this  world  is  not  man  created  in  the  image  of  his 
Maker,  but  the  creature  of  the  forest  best  fitted  for 
destroying  his  fellows. 


OF  MUTUAL  INSURANCE 


27 


CO-OPERATION  SUCCESSFUL. 

But  these  positions  are  not  true.  There  never 
has  been  a time  when  co-operation  was  not  a success. 
From  the  dawn  of  history,  or  as  the  lawyers  say  ‘ ‘ so 
long  that  the  memory  of  man  runneth  not  to  the  con- 
trary,’ 9 have  human  beings  joined  hands  with  their 
fellows  for  the  common  weal.  Nor  is  it  true,  as  is 
sometimes  sneeringly  remarked,  that  the  cases  of 
success  are  only  to  be  found  among  those  affairs  of 
life  which  require  no  business  ability  for  their  man- 
agement. Co-operation  has  succeeded  everywhere, 
it  has  managed  the  farm  and  the  store,  the  shop  and 
the  factory,  its  realm  covers  the  land  and  the  sea. 
There  is  no  business  too  complex,  no  task  too  diffi- 
cult, for  it  to  undertake.  Nay,  it  has  demonstrated 
its  ability  to  deal  successfully  with  the  greatest  prob- 
lems of  the  world.  The  United  States  of  America  is 
today  the  leading  power  of  the  world,  and  what  is  it 
but  a grand  example  of  successful  co-operation  by 
the  people  in  self  government?  And  so  thoroughly 
is  it  imbued  with  this  principle,  that  it  is  today  reach- 
ing out  and  persuading  other  nations  to  follow  its 
own  peaceful  example,  to  substitute  arbitration  for 
war,  and  to  work  in  harmony  for  the  accomplishment 
of  the  civilization  and  enlightenment  of  the  whole 
human  race,  including  those  very  peoples  who  less 
than  a century  ago  were  considered  to  have  been 
brought  into  this  world  by  the  Creator  only  to  be 
doomed  to  hopeless  and  helpless  slavery.  That  is, 
the  only  really  successful  nation  of  today,  is  the  only 
purely  co-operative  nation.  No  well  informed  per- 


28 


A HAND  BOOK 


son  will  today  attack  those  positions.  They  are  too 
well  established  and  the  facts  are  too  widely  known. 

Turning  now  to  the  special  phase  in  which  the 
Manual  is  interested,  to  Mutual  Insurance,  it  will  be 
found  that  the  experience  of  centuries  is  in  its  favor, 
all  the  early  insurance  companies  of  the  old  world 
were  Mutuals  and  every  one  of  them  did  a useful 
and  beneficial  work.  In  the  United  States,  the  oldest 
and  strongest  companies  are  Mutuals,  and  when  a 
great  conflagration  sweeps  over  the  congested  dis- 
tricts of  a Boston  or  a Baltimore,  it  is  the  joint  stock 
companies  and  not  the  Mutuals  which  show  the  heav- 
iest per  cent  of  failures.  This  subject,  however,  is 
treated  more  fully  in  the  chapter  ‘ ‘ Comparisons ’ 9 to 
which  the  reader  is  referred. 

EVILS  ELIMINATED. 

Aside  from  their  undoubted  safety,  there  are 
other  advantages  in  the  Mutuals  which  should  not  be 
passed  by  without  mention.  Mutual  Insurance  elim- 
inates the  so-styled  rate  wars.  These  are  generally 
originated  by  some  agent  who  gives  a rebate  to  se- 
cure a large  risk,  others  retaliate,  and  finally  rates 
are  forced  down  below  the  cost  of  indemnity.  The 
deficiency  must  be  made  up  and  this  burden  gener- 
ally falls  on  persons  of  small  means  or  on  those  re- 
siding in  other  localities.  In  either  case,  gross  in- 
justice results. 

Such  occurences  are  impossible  under  the  Mu- 
tual System,  for  the  only  competition  among  them  is 
that  which  never  aims  to  harm  another.  That  com- 
petition which  injures  itself  to  injure  another  still 


OF  MUTUAL  INSURANCE 


29 


more,  is  iniquitous  and  the  Mutual  System  wipes  it 
out.  It  also  wipes  out  the  attempt  so  often  made  to 
gain  undue  advantage,  and  in  so  doing,  does  away 
with  all  temptation  to  tamper  with  legislation  with 
the  intent  of  harming  a competitor. 

NO  IMMENSE  ACCUMULATIONS. 

The  Mutual  System  also  dispenses  with  the  im- 
mense accumulations  of  money  by  Insurance  Com- 
panies. Such  aggregations  of  capital  in  the  hands 
of  a few,  have  always  been  looked  upon  as  somewhat 
of  a menace  to  the  community.  Comparing  the  mod- 
est reserves  of  the  Mutuals  with  these  enormous  ac- 
cumulations, even  the  largest  of  them  shrinks  into 
insignificance.  Remembering  that  the  vast  majority 
of  the  Mutuals  carry  scarcely  any  reserve  above  the 
unearned  premiums  and  assessments  on  hand,  the 
contrast  becomes  still  greater.  Much  of  the  joint 
stock  advertising  about  their  surplus  has  no  solid 
foundation.  They  use  the  expression  “ surplus  as 
regards  policy  holders.”  It  is  true  that  in  case  of 
loss,  all  the  assets  of  a company  are  liable,  but  what 
assurance  has  the  policy  holder  that  all  the  surplus 
will  be  there  when  he  has  a loss  ? Whose  is  that  sur- 
plus ? Not  his,  nor  has  he  or  his  fellow  policy  holders 
any  control  of  it  whatever.  It  belongs  to  the  stock 
holders.  Should  the  company  choose  to  distribute 
that  portion  of  it  above  the  legal  requirements 
among  the  stock  holders,  what  is  to  prevent?  So 
long  as  they  comply  with  the  requirements  of  the  sta- 
tutes and  carry  the  amount  provided  for,  they  may 
dispose  of  the  rest  as  they  please.  And  it  is  no  fancy 


30 


A HAND  BOOK 


sketch  which  pictures  an  organized  band  of  wreckers 
acquiring  control  of  such  a company  and  converting 
the  surplus  to  their  own  use.  Not  long  ago  three 
thousand  dollars  was  offered  for  a single  share  of 
one  of  the  large  life  insurance  companies  of  New 
York  city.  Its  par  value  is  one  hundred  dollars  and 
its  investment  value  is  far  below  the  offer.  While 
the  surplus  of  a joint  stock  company  belongs  to  the 
stock  holders,  the  surplus  of  the  Mutuals  belongs  to 
the  policy  holders.  The  courts  and  the  official  in- 
vestigations of  the  eastern  states  have  shown  a state 
of  affairs  endorsing  every  position  taken  in  this 
chapter.  The  columns  of  the  newspapers  have  been 
crowded  with  exposures  of  official  misconduct,  and 
the  end  is  not  yet. 

Again,  the  small  reserves  of  the  Mutuals  can 
easily  find  investment  in  first  class  mortgage  loans 
or  similar  gilt-edged  securities,  close  at  home.  These 
are  beyond  the  reach  of  the  fluctuations  of  the 
market,  and  are  untouched  by  panics.  They  are  safe 
in  all  kinds  of  financial  weather.  But  the  investment 
of  the  millions  of  the  joint  stock  companies  is  a seri- 
ous matter.  Railroad  stocks  and  bonds  are  used  to 
an  enormous  extent.  Other  corporation  securities, 
state  and  local  bonds,  are  bought  up ; in  fact,  every- 
thing which  it  is  hoped  will  pay,  is  in  demand.  In- 
surance companies  publish  lists  of  their  investments, 
but  what  does  the  average  policy  holder  know  about 
it?  Suppose  a panic  occurs.  The  gilt-edged  securi- 
ties of  the  Mutuals  will  hold  their  own,  but  what 
about  the  stocks  and  bonds  of  the  others.  There  will 
be  as  there  was  before  in  the  periods  of  depression, 


OF  MUTUAL  INSURANCE 


31 


a flow  of  eloquence  about  shrinkage  of  value,  etc.  But 
suppose  the  Baltimore  fire  had  occurred  in  the  midst 
of  the  last  panic,  where  would  the  prices  of  these 
joint  stock  securities  have  gone  to?  It  was  well  for 
the  country  that  this  conflagration  took  place  when 
the  treasuries  of  the  insurance  companies  were  flush 
with  money  and  stocks  were  high.  It  is  no  answer 
to  this  to  say  that  such  a condition  of  things  is  not 
likely  to  occur.  Panics  do  occur  in  spite  of  all  human 
efforts,  and  they  occur  when  least  expected.  The 
fire  risk  in  the  large  cities  is  such  that  a conflagra- 
tion may  occur  any  day  in  any  one  of  them,  wiping 
out  more  property  than  has  ever  heretofore  been 
consumed  at  once.  To  provide  absolute  safety,  not 
only  the  probable  must  be  guarded  against,  but  even 
the  possible,  no  matter  how  improbable. 

MUTUALS  NEVER  MANIPULATE  THE  MARKET. 

What  security  have  the  stock  holders  that  these 
vast  funds  will  not  be  used  to  manipulate  the  stock 
market?  There  are  charges  that  this  has  been  done 
and  is  being  done,  and  so  well  founded  are  these 
charges,  that  State  Superintendents  of  Insurance 
have  deemed  them  worthy  of  notice  and  investiga- 
tion. And  even  now  the  courts  are  busy  with  cases 
of  this  nature.  Could  any  one  use  the  small  reserves 
of  the  Mutuals  in  that  manner?  Is  it  supposable 
that  Mutual  officials  could  ever  promote  any  finan- 
cial scheme  with  the  expectation  of  unloading  their 
stock  upon  the  companies?  The  very  question  is 
absurd.  But  suppose  the  presidents  of  half  a dozen 
of  the  larger  insurance  companies  united  to  dabble 


32 


A HAND  BOOK 


in  stocks.  They  can  juggle  with  the  market  as  they 
please.  But  under  the  Mutual  system,  these  im- 
mense reserves  would  be  left  in  the  pockets  of  the 
policy  holders  and  only  enough  carried  to  insure  a 
working  balance  in  the  case  of  heavy  losses. 

Where  are  the  interests  of  the  stockholder  of 
these  enormous  insurance  companies?  They  are 
with  the  railroads  and  other  corporations  whose 
stocks  they  own.  WTiere  are  the  interests  of  the  Mu- 
tuals ? They  are  with  the  people  who  are  their  policy 
holders.  The  Mutuals  only  ask  a fair  field  and  no 
favor.  They  welcome  state  supervision  which  in- 
sists upon  safe  management  and  shuts  out  all  that 
which  is  doubtful.  They  have  no  other  favors  to  ask. 

There  are  not  a few  who  think  that  co-operation 
is  to  offer  the  solution  of  the  trust  problem.  WTiile 
this  is  not  true  universally,  yet  it  is  a long  step  in 
the  right  direction.  Those  railroads  whose  stocks 
are  owned  along  the  line,  those  banks  whose  shares 
are  widely  distributed,  in  a word,  all  those  corpora- 
tions which  are  largely  owned  by  their  customers, 
make  little  or  no  trouble.  But  in  the  sphere  occupied 
by  the  Mutuals,  they  have  fully  solved  the  corpora- 
tion problem  and,  at  no  distant  day,  will  occupy  the 
entire  field,  to  the  exclusion  of  every  other  form  of 
insurance. 


A MUTUAL  TRUST  IS  IMPOSSIBLE. 

There  is  no  possibility  of  combination  to  fix 
rates  or  of  unhealthy  competition  among  Mutuals. 
Each  one  does  business  as  cheaply  as  it  can  and 
charges  its  members  only  actual  cost.  Nor  does  it 


OF  MUTUAL  INSURANCE 


33 


really  make  any  difference  what  their  rates  are. 
Two  Mntnals  in  the  same  vicinity  will  naturally  do 
business  for  just  about  the  same  cost.  All  premiums 
collected  in  excess  of  that  cost  will  be  returned,  be 
they  large  or  small. 

The  late  developments  should  be  a warning 
against  the  accumulation  of  immense  funds.  The 
following  from  the  Underwriters’  Review,  of  May 
25, 1 905,  is  interesting : 

“An  item,  the  correctness  of  which  has  not,  we 
believe,  been  disputed,  has  lately  gone  the  rounds  of 
the  daily  press,  which  states  that  eleven  prominent 
business  men  of  New  York  City  are  directors  in  553 
corporations,  such  as  banks,  trust  companies,  rail- 
way companies,  and  the  like,  an  average  of  about 
fifty  directorships  to  one  man.  Referring  to  this  the 
United  States  Investor  calls  timely  attention  to  the 
obvious  fact  that  no  man  can  discharge  properly  the 
obligations  which  such  a multiplicity  of  director- 
ships involves.  Chauncey  M.  Depew,  an  Equitable 
Life  director,  and  James  H.  Hyde,  the  Equitable 
vice  president,  hold  respectively  seventy-four  and 
forty-seven  places  on  sundry  boards  of  directors. 
These  and  other  cases  of  directors  who  do  not  direct, 
illustrate  the  thoroughly  bad  phase  of  loading  down 
a corporation  with  names  of  ‘influential’  men  who, 
perforce,  while  nominally  responsible,  let  two  or 
three  men  in  immediate  control  run  the  corporation 
to  suit  themselves.  The  public,  which  is  caught  by 
big  names,  may  be  swindled  right  and  left,  while  the 
directors  can  only  weakly  ‘plead  the  baby  act.’ 

3 


34 


A HAND  BOOK 


Since  the  extract  above  quoted  was  published, 
some  of  the  directors  have  been  forced  out,  but  it  is 
doubtful  if  those  who  took  their  places  are  much  bet- 
ter. But  the  paragraph  shows  how  intimate  is  the 
connection  between  the  great  corporations,  and  how 
‘ ‘ two  or  three  men  in  immediate  control  ’ ’ manage  al- 
most a billion  dollars,  belonging  to  other  people. 

As  was  said  before,  such  a state  of  affairs  is 
absolutely  impossible  among  Mutuals. 

4 ‘The  total  assets  of  the  old  line  fire  and  life 
insurance  companies  in  the  United  States  are  in  ex- 
cess of  $2,500,000,000.  The  exact  amount  invested 
in  railroad  stocks  and  bonds  is  not  easily  ascertained. 
In  those  companies  in  which  those  investments  are 
separately  stated  it  runs  over  seventy  per  cent.  But 
estimating  it  at  sixty  per  cent,  to  be  on  the  safe  side, 
the  railroad  investments  of  these  companies  are  at 
least  $1,500,000,000.  Of  this  amount  over  one-third 
is  owned  within  two  miles  of  the  New  York  post 
office. 

“How  much  of  the  remaining  forty  percent  is 
invested  in  other  corporations,  how  much  is  loaned 
to  them  on  collateral  security,  the  published  records 
do  not  show.  But  considering  only  the  railroad 
holdings,  the  power  of  these  directors  is  enormous. 
The  eleven  men  named  above  could  meet  by  them- 
selves, arrange  a program  for  all  the  rest  and  carry 
it  out.  They  have  the  power  to  so  manipulate  the 
markets  as  to  crush  out  all  except  those  in  their  own 
combination  and  thus  stifle  competition  to  the  end 
that  they  may  charge  what  they  please  for  what  they 
offer  to  the  public.  How  long  the  American  people 


OF  MUTUAL  INSURANCE 


35 


will  endure  this  state  of  affairs,  depends  upon  the 
vigor  and  patriotism  of  the  friends  of  co-operation.,, 

MAN  A SOCIAL  BEING. 

There  is  in  humanity,  and  ever  has  been,  a so- 
cial instinct.  Man  is  classed  as  a gregarious  animal. 
This  desire  for  companionship  is  so  strong  and  so 
general  that  the  exceptional  cases,  the  hermit  and 
the  recluse,  at  once  suggest  some  mental  disorder. 
Each  family  makes  its  own  society  in  the  ordinary 
every  day  affairs  of  life,  nevertheless,  this  does  not 
satisfy  all  the  desires  of  man’s  nature.  He  is  inter- 
ested in  his  fellows,  he  reaches  out  and  where  occa- 
sion presents  itself,  he  is  ready  to  offer  his  services. 
This  is  but  the  natural  manifestation  of  his  social 
instincts.  In  isolated  communities  or  where  the 
population  is  sparse,  it  is  seen  in  the  “ raising,” 
when  the  neighbors  unite  to  erect  a dwelling,  expect- 
ing that  in  the  future  they  shall  be  aided  in  time  of 
need.  It  appears  in  the  “bees,”  where  neighbors 
gather  to  help  some  other  neighbor  and  have  a good 
time  while  at  their  work. 

Besides  the  social  instinct  just  alluded  to,  there 
is  another  incentive,  the  desire  for  some  advantage 
or  relief  from  some  material  evil.  This  gives  rise  to 
larger  organizations,  the  co-operative  store,  the  fac- 
tory, the  insurance  company  and  other  business 
establishments.  The  material  rather  than  the  social 
element  first  presents  itself  to  view  in  these,  but  the 
social  element  exists  and  must  not  be  lost  sight  of. 
When  the  co-operators  are  scattered,  as  in  the  case 
of  Mutual  Insurance  Companies,  there  is  a liability 


36 


A HAND  BOOK 


to  forget  that  the  man  in  the  next  township  is  as 
much  our  neighbor  as  the  man  whose  home  is  just 
across  the  street.  But  ignoring  the  fact  of  the  com- 
mon humanity  and  common  interests  of  the  race, 
reduces  co-operation  to  the  level  of  the  trust  and  the 
corporation  and  defeats  the  very  end  for  which  it 
exists. 

But  while  the  importance  of  the  social  side  may 
not  always  be  fully  realized  it  is  seldom  entirely 
ignored.  It  is  a fortunate  circumstance  that  an 
organization  which  is  co-operative  in  form  but  not 
in  spirit  suffers  the  fate  of  any  other  corpse.  It 
becomes  offensive  and  is  taken  away.  A co-opera- 
tive enterprise  exists  as  a business  and  is  to  be  con- 
ducted as  a business,  this  is  the  material  side.  But 
were  it  not  for  the  social  side  it  would  not  exist  at 
all.  As  said  above,  there  are  two  elements,  the  ab- 
sence of  either  one  is  fatal. 


CHAPTER  III. 


CO-OPERATION. 

WHAT  IS  IT? 

In  the  broad  sense  of  the  word,  co-operation  is 
the  union  of  several  persons  to  accomplish  some  re- 
sult. This  definition  has  been  limited  in  general  use 
to  the  union  of  persons  for  the  purpose  of  producing 
or  purchasing  some  products  or  some  services  at 
cost,  and  in  this  sense  it  will  be  used  in  this  Manual. 

AS  OLD  AS  HUMANITY. 

Co-operation  began  with  the  birth  of  the  human 
race,  and  it  is  the  normal  law  of  labor  in  the  family 
today.  In  the  community,  though  its  sphere  has  been 
narrowed  by  illegitimate  methods,  it  is  gaining  its 
former  place.  The  enormous  economic  changes  of 
the  last  two  centuries,  gave  opportunities  for  combi- 
nation of  which  avarice  has  eagerly  taken  advantage. 
Partnership  and  joint  stock  combinations  were  orig- 
inally for  the  purpose  of  co-operating  in  producing 
results  which  were  beyond  the  power  of  the  individ- 
ual, and,  confined  to  this  field,  they  were  useful  insti- 
tutions. But  when  the  monopolistic  idea  developed, 
then  the  evil  side  of  these  organizations  began  to 
show  itself.  The  wealthy  devoured  the  poor,  the 
large  establishment  drove  out  the  little  one,  and  the 
unscrupulous  and  the  grasping  set  the  prices  and 

—37 


38 


A HAND  BOOK 


compelled  the  would-be  honest  to  follow.  In  short, 
the  era  of  the  trusts  was  upon  the  people  before  they 
suspected  it. 

Meanwhile,  the  Mutual  or  co-operative  institu- 
tions had  been  quietly  pursuing  their  way,  and  as  the 
corporations  became  more  and  more  aggressive,  the 
people  again  turned  to  them  for  relief.  This  was 
especially  the  case  in  the  insurance  field.  The  old 
co-operative  companies  grew  stronger  and  new  Mu- 
tuals sprang  up  everywhere. 

CO-OPERATION  NOT  A MERE  SENTIMENT. 

Occasionally  there  was  a misconception  as  to  the 
true  sphere  of  co-operation  and  then  there  was 
trouble  and  perhaps  failure.  The  underlying  prin- 
ciple of  co-operation  is  equal  and  exact  justice  to  all 
without  regard  to  external  conditions  or  circum- 
stances, and  any  disregard  of  this  principle  does 
harm  and  may  even  work  disaster.  It  is  said  that 
there  is  a moral  as  well  as  a business  side  to  co-oper- 
ation, that  men  work  together  not  only  for  their  own 
good  but  to  benefit  their  fellow  men.  This  is  true, 
but  the  more  exactly  the  rules  of  justice  are  observed, 
the  more  will  be  the  benefits  on  the  moral  side. 

Sympathy,  sentiment  and  compassion  have  their 
place  in  the  world.  The  man  whose  soul  has  no  such 
emotions  is  not  far  from  a demon,  but  efforts  to 
substitute  them  for  justice  in  business  transactions 
will  only  result  in  evil. 

On  the  other  hand,  co-operation  cultivates  all 
the  finer  feelings  of  humanity,  it  makes  its  adher- 


OF  MUTUAL  INSURANCE 


89 


ents  sympathetic  and  charitable.  They  will  be  of 
more  service  to  their  fellowmen  as  individuals  than 
would  be  possible  in  any  other  way. 

To  put  it  differently,  co-operation  teaches  the 
highest  form  of  benevolence,  but  it  must  be  with 
one ’s  own.  It  does  not  believe  in  being  generous  with 
what  belongs  to  another.  It  does  not  believe  in  that 
form  of  benevolence  which  boasts  of  its  gifts  and 
raises  the  price  of  its  products  to  compel  the  public 
to  pay  its  subscriptions. 

Co-operation  harms  no  man  who  is  engaged  in 
any  legitimate  business.  It  drives  no  one  out  of 
work,  it  employes  as  many  people  as  any  other  or- 
ganization or  method  of  conducting  business,  and  it 
pays  as  good  wages.  While  it  occupies  its  own  field, 
it  leaves  an  equal  chance  to  every  one  else.  It  is  for 
the  benefit  of  all,  but  for  the  injury  of  none. 

IT  HAS  RAISED  THE  STANDARD  OF  COMFORT. 

It  has  had  an  important  influence  in  the  world 
in  raising  the  standard  of  human  comfort.  Years 
ago  in  England  the  condition  of  the  working  men  in 
some  districts  was  appalling.  They  were  worse 
housed  and  worse  fed  than  the  cattle.  Finally  in 
Rochdale,  amid  the  jeers  of  the  mob,  a little  co-oper- 
ative store  was  opened  in  Toad  Lane.  It  was  but  a 
few  months  before  the  public  saw  that  the  patrons 
of  “the  Store”  seemed  better  fed  and  better  dressed 
than  the  others.  Landlords  said  they  paid  their 
rents  more  promptly.  Success  followed,  and  today 
the  co-operative  institutions  of  England  are  number- 
ed by  the  thousands  and  their  capital  by  the  millions 


40 


A HAND  BOOK 


of  pounds.  And  the  working  men  can  never  be 
forced  back  to  their  old  style  of  living.  How  was 
this  accomplished?  By  charity?  Not  one  penny 
was  ever  so  given  by  the  organization.  It  was  by 
equal  and  exact  justice  in  business  methods.  There 
is  a lesson  in  this. 

The  Mutual  Co-operative  Insurance  Companies 
of  the  United  States  have  done  a grand  work.  How 
much  their  savings  to  the  policy  holder  amount  to 
is  a matter  which  cannot  even  be  estimated.  It  is 
somewhere  in  the  billions  of  dollars  and  that  is  be- 
yond comprehension.  Nor  can  anyone  estimate  the 
increased  comfort  in  living  coming  from  the  higher 
standard  of  Mutual  Insurance  with  regard  to  keep- 
ing homes  in  better  condition,  in  fostering  habits  of 
promptness  and  a general  care  for  each  other’s  in- 
terests. 

The  usefulness  of  co-operation  is  just  beginning. 
The  world  is  growing  better,  wiser  and  more  honest. 
It  is  the  few  who  are  rapacious  and  oppressive,  and 
with  each  successive  year  there  will  come  into  the 
field  a new  army  of  co-operators,  and  so  the  force  is 
growing  which  will  finally  overthrow  the  whole  trust 
system.  This  will  not  only  clear  the  way  for  co-oper- 
ation, but  will  make  it  possible  for  many  organiza- 
tions which  are  now  compelled  to  adopt  trust  meth- 
ods, to  do  an  honest  and  respectable  business. 

CO-OPERATION  REQUIRES  BUSINESS  ABILITY. 

Sometimes  it  is  said  that  a co-operative  enter- 
prise is  a simple  affair,  something  that  will  almost 
run  itself.  This  is  a most  pernicious  error.  There 


OF  MUTUAL  INSURANCE 


41 


is  no  form  of  business  which  requires  more  skill  in 
the  general  management,  more  accuracy  in  the  ac- 
counts and  more  care  in  details,  than  this.  More- 
over, there  must  be  strict  and  absolute  honesty 
everywhere.  Lacking  any  one  of  these  essentials, 
failure  will  inevitably  ensue.  This  suggests  a word 
of  caution.  When  a man  needs  reforming  it  is  the 
best  plan  to  reform  him  first  and  admit  him  after- 
ward. It  will  be  well  to  have  it  understood  that 
membership  in  a Mutual  is  a certificate  of  character, 
but  the  certificate  should  never  be  dated  back.  If  a 
building  needs  repairing,  let  these  repairs  be  made 
before  the  policy  takes  effect,  not  afterwards. 

Friends  of  co-operation  injure  the  cause  when 
they  claim  too  much.  It  holds  a large  place  in  the 
world  but  not  to  the  entire  exclusion  of  every  other 
method  of  transacting  business.  The  corporation 
organizer,  the  captain  of  industry,  the  inventor  and 
the  man  of  genius  will  always  be  in  demand  and  will 
always  be  able  to  command  large  rewards  for  legiti- 
mate services.  Co-operation  is  not  a weapon  of  of- 
fense, its  mission  is  not  to  destroy  but  to  build  up, 
its  voice  is  not  for  war  but  for  peace,  and  its  watch- 
word is  not  conquest  but  fraternity.  WTiile  it  takes 
care  of  its  own,  it  will  always  leave  an  equal  chance 
for  every  one  else,  and  while  it  thrusts  its  hands  into 
no  one ’s  pocket  it  does  not  permit  any  other  hand  to 
remain  long  or  comfortably  in  its  own. 


42 


A HAND  BOOK 


CO-OPERATION  MUST  NOT  BE  CONFOUNDED  WITH 
PROFIT  SHARING. 

Co-operation  is  often  confounded  with  profit 
sharing.  The  two  are  different  in  every  particular. 
In  profit  sharing  there  is  either  corporate  or  indi- 
vidual ownership  and  these  owners  employ  and  pay 
the  laborers.  Capital  draws  a share  in  the  profits 
and  this  share  goes  to  its  owners.  Sometimes  a por- 
tion of  this  share  is  awarded  to  the  laborers  but  al- 
ways as  a method  of  payment.  It  accomplishes  the 
same  results  as  a sliding  scale  of  wages.  In  both 
cases  there  is  the  private  or  corporate  organization, 
profit  to  capital,  ownership  by  those  who  do  not 
labor  and  labor  by  those  who  do  not  own. 

IS  NOT  SOCIALISM. 

Above  all  it  must  be  clearly  distinguished  from 
socialism.  Co-operation  asks  from  the  state  no  fav- 
ors. The  same  right  of  existence  which  is  accorded 
to  other  business  organizations  is  all  it  requires. 

On  the  contrary,  socialism  is  practically  a 
monopoly  by  the  nation.  All  service,  all  producing 
of  whatever  kind,  is  done  by  the  government.  No 
ownership  is  recognized  but  that  of  the  nation.  No 
further  explanation  is  needed  to  make  the  difference 
clear  and  these  outcries  of  the  enemies  of  co-opera- 
tion, that  it  is  socialistic  should  be  disregarded. 

A FALSE  CRITICISM. 

A common  criticism  on  co-operative  enterprises 
is  expressed  somewhat  as  follows : 4 ‘Yes,  your  busi- 


OF  MUTUAL  INSURANCE 


43 


ness  is  getting  along  all  right,  it  will  continue  to 
prosper  till  it  becomes  large  enough  to  attract  at- 
tention. Then  some  ambitious  persons  will  conspire 
to  get  hold  of  it  and  as  the  ‘outs’  are  frequently 
stronger  than  the  ‘ins’  there  may  be  a change  and 
the  business  may  fall  into  the  hands  of  persons  who 
care  for  nothing  but  their  own  aggrandizement. 9 1 
As  evidence,  showing  that  their  criticism  is  not  un- 
founded, they  point  to  the  strife  raged  in  the  eastern 
cities  for  the  control  of  the  funds  of  the  great  life 
insurance  companies,  and  to  the  continual  quarrels 
in  the  management  of  many  other  organizations.  If 
such  things  occur  where  only  a few  are  privileged 
to  vote  what  will  be  the  situation  where  every  policy 
holder  has  a voice  in  the  control  ? 

In  the  past  there  has  been  force  in  these  criti- 
cisms. Many  a well  planned  co-operative  enterprise 
has  failed  because  some  one  obtained  control  who 
was  either  incompetent  or  dishonest.  An  idea  pre- 
vailed that  co-operation  did  away  with  the  need  of 
skill  and  experience  in  the  manager,  that  any  body 
could  run  a co-operative  enterprise,  the  members 
took  no  particular  care  in  the  selection  of  the  offi- 
cers, they  voted  for  the  smooth  tongued  talker  or  the 
jolly  good  fellow  and  disaster  followed. 

But  as  time  elapsed  it  became  evident  that  co- 
operation is  a form  of  business  and  a form  which  re- 
quires as  much  education,  experience  and  skill  as 
any  other  method,  and  as  that  fact  impressed  itself 
upon  the  fraternals  of  the  community  they  became 
more  and  more  careful  in  the  selection  of  their  offi- 
cers. The  tendency  at  the  present  time  is  to  retain 


44 


A HAND  BOOK 


those  who  have  given  good  service  and  to  value  ex- 
perience and  skill  at  their  proper  worth.  Faithful 
servants  are  retained  as  long  as  they  will  serve, 
especially  in  the  Mutual  Insurance  Companies.  One 
secretary  in  one  of  the  largest  Mutuals  has  a record 
of  forty-five  years,  another  of  thirty-six,  while  there 
are  a large  number  who  have  served  from  twenty  to 
thirty  years.  Great  care  is  also  exercised  in  select- 
ing directors.  Terms  of  service  are  from  three  to 
five  years  and  at  each  annual  election,  those  who  are 
willing  to  continue  are  generally  re-elected. 

In  every  community  will  be  found  a class  of 
people  who  will  not  work  and  who  are  complete  and 
absolute  failures  in  life,  but  who  have,  nevertheless, 
innumerable  schemes  for  making  everybody  rich. 
It  is  a peculiar  characteristic  of  these  plans  that  they 
invariably  include  as  a condition  of  success  that 
their  originator  be  put  in  charge  of  the  business  at 
a good  salary.  These  men  sometimes  succeed  in  in- 
fluencing enough  votes  to  secure  them  positions  in 
co-operative  institutions.  When  this  takes  place,  the 
establishment  might  as  well  close  its  doors  at  once. 
The  man  who  is  a failure  in  his  own  business  is  not 
fit  to  have  any  part  in  the  management  of  a co-oper- 
ative enterprise  or  of  any  other.  It  will  be  a bright 
day  for  the  country  and  its  institutions  when  public 
sentiment  is  advanced  enough  to  relegate  all  such 
botches  and  grafters  to  the  rear. 

Mutual  Insurance  men  should  never  elect  to 
office  a man  whom  they  would  not  trust  with  the 
management  of  their  own  private  business.  Wreck- 
ing is  possible  on  a small  scale  as  well  as  on  a large 


OF  MUTUAL  INSURANCE 


45 


one;  so  is  grafting.  The  late  developments  in  the 
case  of  the  large  life  insurance  companies  of  New 
York  state  should  be  a warning. 

Let  every  co-operator  remember  that  eternal 
vigilance  is  the  only  safeguard,  and  to  put  in  office 
only  men  whose  lives  have  demonstrated  their  capa- 
bility and  integrity. 

Co-operatives  sometimes  settle  a transaction  all 
at  once.  They  may  buy  a quantity  of  goods.  As 
soon  as  the  purchase  price,  freight  and  other  ex- 
penses are  ascertained,  the  exact  cost  can  be  arrived 
at,  each  one  can  pay  his  share  and  the  transaction 
may  be  closed.  Generally  the  matter  is  not  disposed 
of  so  summarily  and  in  the  case  of  Insurance  such 
settlements  would  be  impossible.  The  exact  cost 
cannot  be  ascertained  till  the  expiration  of  the 
policy.  In  the  advance  premium  and  the  note  com- 
panies there  is  an  unused  balance  which  is  returned 
to  the  policy  holder.  Agents  frequently  forget  this, 
and  in  comparing  different  methods  of  doing  busi- 
ness they  take  the  whole  note  or  advance  premium 
as  a basis.  They  lose  an  important  advantage  in 
doing  so.  The  comparisons  should  be  made  between 
the  cost  of  the  two  as  shown  by  actual  experience, 
that  is  what  the  policy  holder  has  paid  for  a com- 
pleted term  in  a Mutual  and  what  the  usual  charges 
for  the  same  indemnity  would  amount  to  under  other 
methods  of  doing  business. 

WILL  HOLD  THE  FORT. 

But  the  soul  of  co-operation  is  honesty.  Not  the 
negative  character  which  simply  avoids  the  evil,  but 


46 


A HAND  BOOK 


the  positive  “ virtue’ ’ of  the  old  Koman,  who  not 
only  had  convictions,  but  courage  enough  to  fight  for 
them.  Such  honesty  is  aggressive  and  makes  con- 
verts, it  is  the  honesty  of  true  co-operation. 

That  co-operation  will  succeed  without  a strug- 
gle is  not  to  be  expected.  It  will  be  attacked  on 
every  side  by  those  interested  in  other  lines  of  busi- 
ness. The  fight  will  be  a fierce  one.  No  great  prin- 
ciple, no  improved  method  was  ever  adopted  with- 
out a contest.  Why  should  it  be  otherwise  with  co- 
operation ? 

Wliat  can  be  had  for  nothing  is  worth  nothing. 
The  man  who  is  in  nobody’s  way  is  a nonentity,  and 
the  organization  which  no  one  opposes  is  of  no  use 
to  anybody.  The  Mutuals  have  a fight  on  hand. 
There  is  no  cause  for  discouragement.  They  can 
hold  the  fort  in  spite  of  all  opposition.  They  are 
here  because  they  are  needed  and  being  needed,  they 
will  stay. 


CHAPTER  IV. 


COMPARISONS. -The  Joint  Stock  and 
the  Mutuals. 

SCURRILOUS  ATTACKS. 

The  perpetual  and  persistent  attacks  upon  the 
Mutuals  have  been  a vexatious  hindrance.  It  has 
been  reiterated  in  season  and  out  of  season,  that  the 
Mutuals  are  inherently  weak  and  are  dragging  out  a 
precarious  and  short  lived  existence,  which  only 
averages  about  fifteen  years.  Circulars  have  been 
scattered  broadcast  over  the  country  giving  purport- 
ed lists  of  “Failed  Mutuals,”  and  in  fact,  every 
scheme  and  device  imaginable  has  been  resorted  to 
in  order  to  weaken  the  faith  of  the  people  in  their 
ability  to  manage  their  own  insurance  business. 

To  set  at  rest  all  these  misrepresentations,  a 
statement  of  the  hare  facts  will  suffice.  In  the  ab- 
sence of  any  compilation  of  statistics  of  the  Mutual 
business,  the  following  has  been  gathered  from  vari- 
ous sources,  the  authority  for  each  fact  being  given. 

THEIR  RECORD. 

In  the  census  of  1890  there  is  a volume  of  insur- 
ance statistics.  It  is  now  fifteen  years  old,  but  is 
valuable  as  a basis  for  comparison.  The  tables  are 
not  summed  up,  and  the  following  results  were  ob- 
tained by  going  over  the  pages  line  by  line,  and  mak- 
ing an  actual  count.  Table  one  of  the  census  gives 

— 47 


48 


A HAND  BOOK 


the  names,  dates  of  organization,  dates  of  commen- 
cing business,  and  in  case  of  retiring  during  the  de- 
cade, the  date  of  retirement,  just  the  bare  facts  for 
the  years  1880  to  1889  inclusive,  and  only  concerning 
such  companies  as  were  in  business  during  the  de- 
cade or  some  portion  of  it. 

In  ten  states,  southern  and  Pacific,  there  is  no 
mention  of  Mutuals.  Presumably  there  was  adverse 
legislation.  In  two  states  they  seem  to  have  been 
wiped  out.  In  a few  other  states  there  seems  to  have 
been  no  interest  whatever  in  insurance,  there  being 
very  few  either  joint  stock  or  Mutuals  reported. 

But  in  twenty-three  states,  where  the  Mutuals 
have  been  given  a fighting  chance  for  their  lives, 
they  have  made  an  unapproachable  record.  Espec- 
ially is  this  true  in  Illinois,  Iowa,  New  York,  Penn- 
sylvania and  Wisconsin,  each  with  over  a hundred 
Mutuals  at  that  time.  Indiana,  Minnesota,  Ohio, 
Missouri,  New  Jersey,  Connecticut  and  others,  fol- 
low with  records  as  good  in  proportion,  while 
Rhode  Island,  Delaware,  Tennessee,  Virginia  and 
West  Virginia,  each  report  farm  Mutuals,  but  no 
failures. 

Bear  in  mind  that  in  these  figures  everything 
is  put  down  to  the  discredit  of  the  Mutuals  except  an 
absolute  and  positive  success.  Consolidations, 
changes  of  name,  withdrawal  from  business  without 
loss  after  reinsuring,  reorganizations,  unused  chart- 
ers, have  all  been  counted  as  Mutuals  retired. 


MRS.  MARY  A.  LEEKLEY,  PERRY,  OKLA. 

Mrs.  Mary  A.  Leekley  was  born  in  Iowa.  In  1897  with  her 
husband  she  removed  to  Oklahoma.  Following  the  death  of  her 
husband  she  served  as  deputy  register  of  deeds  three  years  and 
refused  the  nomination  tendered  her  by  her  political  party  for 
the  same  office.  Subsequently  she  was  elected  as  secretary  and 
manager  of  the  Oklahoma  Farmers'  Mutual  Insurance  Company 
of  Perry.  Oklahoma,  which  position  she  has  held  for  a number  of 
years.  Mrs.  Leekley  is  a woman  of  many  accomplishments, 
is  a charming  conversationalist  and  possesses  a keen  instinct  and 
relish  for  business  transactions.  She  illustrates  what  can  be 
done  by  a woman  who  will  set  her  mind  upon  the  task. 


LIBRARY 
OF  THE 

UKIYERSfTV  CF  ILLINOIS 


OF  MUTUAL  INSURANCE 


49 


THE  CENSUS  FIGURES. 

The  census  enumerates  five  hundred  and  thirty- 
five  home  stock  companies,  as  doing  business  in  the 
United  States  during  part  or  all  of  the  decade,  at 
the  close,  one  hundred  and  seventy-four  were  out  of 
business,  many  of  them  old  established  companies. 
There  were  five  changes  of  name. 

In  the  same  period  there  were  one  thousand 
four  hundred  and  three  farm  Mutuals.  Of  these, 
one  hundred  and  three  retired  and  some  of  these 
were  Mutuals  only  in  name. 

That  is  32.6  per  cent  of  joint  stock  companies 
retired  but  only  7.2  per  cent  of  farm  Mutuals.  This 
shows  the  staying  power  of  these  Mutuals  to  be  near- 
ly five  times  as  great  in  proportion  as  that  of  the 
joint  stock  companies. 

THE  MUTUALS  THE  OLDEST  COMPANIES. 

An  examination  of  the  comparative  ages  of  the 
companies,  as  found  in  the  table,  shows  that  the 
Mutuals  are  the  old  companies.  The  oldest  of  all, 
of  which  Benjamin  Franklin  was  an  officer,  “The 
Contributionship  for  the  Insurance  of  Houses  from 
Loss  by  Fire,”  dates  back  to  March  25,  1752,  and  is 
a Mutual.  The  next  company,  The  Mutual  Assur- 
ance Company  of  Philadelphia,  chartered  July  5, 
1784,  is  also  a Mutual.  In  all  the  table  gives  ten 
companies  chartered  prior  to  1801,  and  consequently 
dating  back  to  the  eighteenth  century.  Six,  includ- 
ing the  two  oldest,  are  Mutuals,  the  other  four  are 
stock. 


4 


50 


A HAND  BOOK 


A further  inspection  of  the  table  shows  that 
three  hundred  and  twenty-six  of  the  companies  were 
in  business  prior  to  January  1,  1861,  one  hundred 
and  nine  of  them  are  stock  companies  and  two  hun- 
dred and  seventeen  are  farm  Mutuals,  almost  exactly 
two  to  one  in  favor  of  the  Mutuals. 

A count  of  the  Mutuals  of  the  state  of  Wisconsin 
shows  that  of  one  hundred  and  eighty-six  companies 
mentioned  in  the  table,  one  hundred  and  fifty-three 
had  been  in  business  over  ten  years.  Of  these  only 
three  retired  during  the  decade  under  consideration 
and  only  one  of  those  started  during  the  next  ten 
years,  had  retired  up  to  1890.  Not  one  of  the  forty- 
seven  companies  organized  before  1874  had  failed 
or  retired.  Other  states  show  similar  excellent  rec- 
ords. 

An  attempt  to  procure  census  statistics  of  a later 
date,  elicited  the  following  reply : 

UNITED  STATES  CENSUS  OFFICE 

Washington,  D.  G.,  December  11,  1905. 
Mr.  G.  F.  Mingenback,  Chairman, 

McPherson,  Kansas. 

Dear  Sir: 

I am  in  receipt  of  your  letter  of  December  7th,  in 
which  you  ask  for  statistics  on  fire  insurance — if  any  were 
published  by  the  Twelfth  Gensus. 

In  reply,  I beg  to  advise  you  that  under  the  provisions 
of  the  Gensus  Act, this  subject  was  not  designed  for  special 
investigation.  I am  therefore  unable  to  furnish  you  with 
statistics  concerning  it.  I regret  my  inability  to  comply 
with  your  request.  Very  respectfully, 

S.  N.  D.  North,  Director. 


OF  MUTUAL  INSURANCE 


51 


The  priceless  value  of  another  set  of  tables  ten 
years  later,  for  the  purpose  of  comparison,  is  appar- 
ent to  every  member  of  this  organization.  In  fact, 
about  the  only  real  value  there  is  in  census  tables  is 
for  such  purposes. 

Why  was  this  particular  subject  left  out  of  the 
provisions  of  the  census  bill?  There  is  no  explana- 
tion. 

MR.  UPfiAM’S  QUOTATIONS. 

The  following  from  Mr.  Eoger  H.  Upham’s 
magnificent  address  at  Chattanooga  in  1903  will 
serve  as  a basis  for  some  comparisons.  It  originally 
came  from  the  report  of  the  State  Insurance  Com- 
missioner of  Massachusetts  for  1877. 

“Twenty-one  (all  but  six,  and  those  small  ones 
with  but  a single  exception)  of  the  Massachusetts 
stock  companies  were  bankrupted  by  the  Boston  fire 
of  1872,  with  two  exceptions  these  companies  had 
an  unimpaired  capital  and  a liberal  surplus  when  the 
great  conflagration  came,  yet  they  were  able  to  pay 
but  50  per  cent  of  their  insurance  losses. 

“Four  Mutuals  were  forced  into  liquidation  by 
the  Boston  fire.  Three  of  them  paid  their  losses  and 
debts  in  full.  The  other  paid  85  per  cent  of  its  losses 
and  debts. 

“Several  other  Mutuals  suffered  losses  that 
greatly  exceeded  their  cash  funds  and  would  have 
bankrupted  stock  companies  of  equal  size,  but  they 
met  their  obligations  from  drafts  upon  their  contin- 
gent liability  funds  and  are  strong,  excellent  institu- 
tions to-day. 


52 


A HAND  BOOK 


i i This  relatively  shows  the  strength  of  Mutual 
companies  with  that  of  stock  companies  in  case  of 
trouble.  ’ ’ 

That  needs  no  comment,  the  wayfaring  man, 
though  a fool,  need  not  err  therein. 

A JOINT  STOCK  WAIL. 

Now  compare  a paragraph  taken  from  the  Un- 
derwriter’s Review,  Des  Moines,  Iowa,  June  10, 
1903.  The  companies  referred  to  are  joint  stock. 

“The  optimistic  projectors  of  the  numerous  two 
hundred  thousand  dollar  fire  insurance  companies 
being  launched  throughout  the  country  might  study 
with  profit  the  long  list  of  companies  which  have 
failed  and  retired  during  the  past  twenty  years.  In 
conservative  Boston  alone,  according  to  a list  pre- 
pared by  the  Standard,  out  of  fifty-four  companies 
organized  since  1803,  only  three  remain,  now  that 
the  North  American  has  voted  to  go  into  liquidation. 
Of  these  thirty-seven  have  retired  since  1871  and  six- 
teen since  1880.  The  fire  underwriting  highway  is 
strewn  with  wrecks  and  retirements  throughout  its 
entire  course,  most  numerous,  however,  since  the 
i Seventies’,  the  Boston  experience  being  only  sug- 
gestive of  a more  widespread  mortality  elsewhere.” 

The  same  paper,  the  Underwriters  Review, 
March  25, 1905,  says : 

“A  striking  illustration  of  the  unprofitableness 
of  fire  insurance  is  found  in  the  list  of  companies 
either  failed  or  retired  as  given  in  the  just  issued 
New  York  report.  This  shows  that  since  the  insur- 
ance department  was  organized  in  1859,  147  New 


OF  MUTUAL  INSURANCE 


5a 


York  stock  fire  and  marine  companies  have  ceased 
business  and  that  220  companies  of  other  states  and 
33  foreign  companies  have  retired  from  New  York, 
not  all,  but  the  major  portion  of  which  are  dead. 
This  shows  that  over  two  and  a half  times  the  num- 
ber of  stock  companies  now  doing  business  in  New 
York  have  disappeared  from  the  state  in  the  past.’* 

SUPERINTENDENT  DEARTH  QUOTED. 

Turn  now  to  Minnesota,  compare  her  Mutuals 
with  the  joint  stock  companies  of  Boston.  Also  bear 
in  mind  that  the  Boston  and  New  York  companies 
have  been  aided  in  every  possible  way  by  legislation, 
while  the  Minnesota  Mutuals  had  to  fight  for  their 
lives.  The  following  is  taken  from  the  speech  of 
State  Insurance  Commissioner  Elmer  H.  Dearth, 
delivered  before  the  National  Association  of  Co-op- 
erative Mutual  Insurance  Companies  in  1902. 
Speaking  of  the  laws  of  1875,  previous  to  which 
Mutuals  were  barred  from  the  State,  he  says,  ‘ ‘ Dur- 
ing the  first  year  after  the  passage  of  the  act  there 
were  but  two  companies  organized— The  Feather- 
stone  Mutual  of  Goodhue  county,  and  the  Manches- 
ter Mutual  of  Freeborn  county.  The  Featherstone 
Mutual,  however,  never  transacted  any  business, 
surrendering  its  charter  within  the  first  year  after 
the  organization.  It  is  interesting  to  note  that  with 
the  exception  of  this  particular  company,  and  one 
other  organized  some  years  later,  which  also  sur- 
rendered its  charter  before  transacting  any  business, 
none  of  the  township  Mutuals  in  this  state  have  ever 
retired  from  business,  there  not  having  been  a single 


54 


A HAND  BOOK 


failure  through  unprofitable  underwriting,  and  up 
to  date,  or  at  the  close  of  the  year  1901,  there  have 
been  132  incorporated,  130  of  which  are  in  active 
operation  and  enjoying  a high  degree  of  prosper- 
ity.' ’ 

The  total  number  now  in  operation  is  one  hun- 
dred and  forty-two,  and  the  total  saving  to  date  is 
estimated  at  over  twelve  millions  of  dollars.  In  his 
Preliminary  Report  issued  February  23,  1904,  Mr. 
Dearth  says  that  “No  other  class  of  business,  wheth- 
er of  insurance  or  of  any  other  line,  is  conducted  so 
eminently  successful  at  such  a very  small  cost.” 

PRES.  FORBES’  STATEMENT. 

Again,  compare  with  that  Boston  jeremiad  the 
following  Iowa  statistics  furnished  by  President 

Forbes  of  the  National  Association : 

“There  have  been  organized  in  the  State  of 
Iowa,  192  Mutual  Insurance  Companies,  under  what 
is  known  as  Chapter  5 of  the  code  of  laws.  There 
are  now  in  successful  operation,  187  companies  do- 
ing business  under  Chapter  5 of  the  code.  There 
have  been  five  companies  suspended  or  failed  to  do 
business.  Some  of  these  companies,  while  organized 
under  Chapter  5,  were  not  really  mutual  co-oper- 
ative companies,  and  for  this  reason  they  were  com- 
pelled to  suspend  business  and  went  into  the  hands 
of  a receiver,  and  I hereby  enclose  you  a clipping 
from  our  daily  paper  of  the  last  one  that  succumbed 
to  pressure,  which  will  give  you  an  idea  of  all  the 
companies  that  have  suspended  and  for  what  reas- 
on.” 


OF  MUTUAL  INSURANCE 


55 


The  clipping  shows  that  the  companies  which 
failed  were  not  entitled  to  he  classed  as  Mntnals. 

_ OTHER  AUTHORITIES. 

Wisconsin  has  had  forty-four  years  experience 
with  Mntnals  and  Commissioner  Host  writes  in  his 
last  report,  ‘ ‘ Kept  within  the  meaning  and  pnrposes 
of  Mntnality,  and  the  well  tried  limitations  and  re- 
strictions adhered  to,  with  the  economy  and  care 
that  has  characterized  the  management  of  these  com- 
panies, there  never  will  be  a failnre,  and  the  protec- 
tion afforded  will  always  he  the  best.  ’ ’ 

The  Insurance  Commissioner  of  Pennsylvania 
writes  concerning  farm  Mntnals,  “ There  are  about 
two  hundred  of  these  companies  which  confine  their 
business  entirely  to  farm  properties  and  I presume 
there  have  not  been  more  than  eight  or  ten  of  such 
companies  that  have  gone  out  of  business  in  the  last 
twenty  years.” 

The  Commissioner  of  Washington  writes  that 
there  are  eleven  Mutuals  doing  business  in  that 
State,  and  so  far  as  he  can  find,  only  one  has  with- 
drawn after  being  organized. 

THE  BALTIMORE  FIRE. 

Shortly  after  the  great  conflagration  in  Balti- 
more, an  old  line  journal  made  the  statement  con- 
cerning the  Insurance  Companies  of  that  city,  that 
all  but  two  of  the  local  companies  were  in  the  hands 
of  a receiver,  and  that 4 1 The  local  Mutuals  were  gone 
for  good.”  The  Manual  Committee  wrote  to  the 


56 


A HAND  BOOK 


Insurance  Department  of  the  State  of  Maryland. 
The  following  pungent  reply  was  received : 

G.  F.  Mingenback,  McPherson,  Kansas. 

Dear  Sir:  Your  requisition  of  the  18th  inst.  received. 
In  reply,  beg  to  advise  that  the  Baltimore  Equitable  Fire 
Insurance  Society  referred  to  in  your  letter  is  A No.  1,  and 
there  is  no  necessity  or  prospect  of  their  discontinuing 
business.  I am  afraid  your  informer  did  not  know  what 
he  was  talking  about.  Yours  Very  Truly, 

LLOYD  WILKINSON, 
Insurance  Commissioner  of  Maryland. 

At  a later  date,  after  the  effects  of  the  great  fire 
were  fully  developed,  a list  of  failures  was  procured. 
Of  the  seven  Maryland  Mutuals  doing  business  be- 
fore the  fire,  two  went  into  the  hands  of  the  receiver, 
leaving  five  to  continue.  There  were  eight  joint 
stock  companies  of  which  five  became  bankrupt, 
leaving  three  to  go  on.  Several  joint  stock  com- 
panies of  other  states  were  forced  out  of  business  by 
this  fire.  But  taking  the  insurance  companies  of 
Baltimore  alone,  the  score  is  two  to  one,  in  favor  of 
the  Mutuals. 

The  New  York  State  Insurance  Department  has 
collected  statistics  of  the  companies  under  its  juris- 
diction. Many  New  York  companies  did  no  business 
in  Baltimore  owing  to  the  enormous  local  taxes.  But 
thirty-eight  companies  insured  property  there  and 
suffered  loss.  Every  one  was  well  managed,  with 
unimpaired  capital  and  ample  surplus.  And  with- 
out that  surplus,  every  one  would  have  been  thrown 
into  the  hands  of  a receiver.  Most  of  them  would 
have  been  hopelessly  bankrupt,  a few  might  have 


OF  MUTUAL  INSURANCE 


57 


continued  in  business  after  levying  a heavy  assess- 
ment to  replace  the  lost  capital,  for  incredible  as 
it  may  seem  after  all  the  talk  about  mutual  assess- 
ments, the  old  line  stock  holder  is  not  infrequently 
liable  to  assessment  himself. 

Four  companies  lost  an  amount  equal  to  their 
entire  capital.  Their  surplus  saved  them.  The 
fourth  paid  in  full  but  reinsured  and  went  out  of 
business  rather  than  levy  an  assessment  to  make 
good  its  capital.  Its  surplus  was  entirely  absorbed. 
Two  others  lost  all  of  their  surplus  and  part  of  their 
capital. 

THOSE  FAILED  MUTUALS. 

Some  years  ago  a list  of  failed  Mutuals  was  cir- 
culated to  frighten  the  public.  It  contains  about  150 
companies  of  which  some  were  only  chartered  and 
some  were  Mutuals  in  name  only,  and  over  thirty  did 
not  pretend  to  be  farm  Mutuals,  but  admitting,  for 
the  sake  of  the  argument,  that  they  were  all  fail- 
ures, how  does  the  list  compare  with  the  old  line  rec- 
ord,—as  8 per  cent  to  35,  or  more  than  four  to  one, 
in  favor  of  the  Mutuals.  That  is,  taking  the  worst 
they  can  say  about  the  Mutuals,  the  stock  companies 
are  four  times  as  risky  as  the  Mutuals.  But  this  is 
not  a fair  showing.  It  is  not  claimed  that  farm  Mu- 
tuals never  fail.  There  are  promoter’s  Mutuals  as 
well  as  old  line  wild-cats.  The  organizer  who  starts 
new  lodges  for  the  charter  member  fees  is  a familiar 
character.  Such  men  sometimes  enter  the  Mutual 
field.  Again,  there  are  organizations  which  are  lim- 
ited or  which  have  a joint  stock  capital  and  which 


58 


A HAND  BOOK 


adopt  the  name  Mutual  without  any  right,  whatever. 
Failures  of  this  kind  have  all  been  charged  up  to  the 
Mutuals,  but  in  the  states  where  statistics  have  been 
accessible,  the  showing  is  different,  as  in  Minnesota 
and  Iowa,  for  instance.  Among  a total  of  nearly 
300  Mutuals,  not  a single  failure  of  a genuine  farm 
Mutual  has  come  to  light. 

FROM  NEW  YORK  STATE. 

At  the  meeting  of  the  National  Association  at 
Topeka,  Kansas,  in  1904,  a very  able  paper  from 
Clawson  Backman,  president  of  the  New  York  Cent- 
ral Association,  was  read.  The  following  are  ex- 
tracts from  it : 

“We  have  yet  to  find  in  the  State  of  New  York 
where  any  Mutual  Company  ever  retired  or  discon- 
tinued business  and  failed  to  pay  100  cents  on  the 
dollar.  ’ ’ 

“We  some  times  come  into  competition  with 
old  line  companies  where  they  are  trying  to  find 
some  old  bankrupt  Mutual  Company,  ’way  back, 
years  ago,  and  see  if  they  cannot  get  someone  to  sue 
on  a premium  note,  and  then  have  this  published  in 
the  papers,  that  the  Mutuals  have  had  another 
assessment  which  cost  from  $10,000  to  $20,000.  Now 
there  is  as  much  difference  between  these  Mutual 
Companies  in  the  State  of  New  York,  as  there  is  be- 
tween day  and  night.  There  are  so  called,  the  old 
stock  mutuals,  where  it  requires  $20,000  in  cash,  and 
$80,000  of  capital  stock  notes,  and  they  issue  non- 
participatory  policies.  ’ ’ 

The  assured  has  nothing  to  do  with  these  com- 
panies whatever.  The  only  people  who  have  formed 


OF  MUTUAL  INSURANCE 


59 


these  companies  become  stockholders  and  derive  the 
benefits.  These  should  have  been  called  joint  stock 
companies,  for  the  assured  never  derives  any  benefit 
from  this  kind  of  insurance. 

Careful  inquiry  among  the  officers  of  State 
Associations  has  resulted  in  a great  number  of  re- 
plies of  the  same  tenor.  The  farm  Mutuals  seldom 
or  never  fail.  The  much  advertised  failures  are  fail- 
ures of  companies  which  either  were  not  Mutuals,  or 
which  never  were  organized  as  legitimate  companies, 
and  were  never  managed  by  farmers. 

In  a recent  address,  an  old  line  official  said  that 
the  Mutuals  might  be  successful  in  narrow  limits 
where  the  problems  were  simple,  etc. 

The  Mutuals  will  accept  that  challenge  at  once, 
and  the  speaker  might  as  well  have  put  his  covert 
sneer  into  plain  language  and  said  that  the  farmers 
were  a lot  of  chumps  who  did  not  know  what  was 
good  for  them. 

Articles  have  been  going  the  rounds  for  some 
time  stating  that  the  records  of  the  great  mercantile 
agencies  show  that  only  one  per  cent  of  the  business 
firms  fail  in  a year  in  the  United  States.  Now  the 
Mutuals  will  accept  that  as  it  stands  and  they  will 
count  nothing  as  a failure  among  joint  stock  com- 
panies which  is  not  absolute  bankruptcy,  i.  e.  non- 
payment of  liabilities.  On  the  other  hand,  they  will 
count  as  failures,  among  Mutuals  every  charter  is- 
sued but  never  used,  every  consolidation,  every  re- 
tirement from  business,  whether  liabilities  are  paid 
or  not.  The  joint  stock  men  shall  have  all  of  these 
advantages,  for  they  need  them. 


60 


A HAND  BOOK 


FROM  OTHER  STATES. 

In  Minnesota  there  are  one  hundred  and  forty- 
two  farm  Mntnals,  all  organized  since  1875  and  most 
of  them  shortly  after  that  date.  At  the  mercantile 
rate  of  one  per  cent  a year,  the  failures  for  the 
period  of  twenty  years  would  have  been  at  the  lowest 
estimate,  between  twenty  and  thirty.  How  many 
were  there?  One  charter  was  taken  out  and  re- 
turned unused,  and  one  company  paid  up  and  re- 
tired. 

In  Iowa,  out  of  192  farm  Mutuals,  five  have  gone 
out  of  business.  The  mercantile  ratio  requires  thirty 
or  forty. 

Pennsylvania  has  two  hundred  farm  Mutuals, 
and  the  commissioner  thinks  that  not  more  than 
eight  or  ten  have  gone  out  of  business  in  twenty 
years.  The  mercantile  ratio  requires  forty  or  over. 

The  same  testimony  comes  from  other  States. 
Correspondents  everywhere  say  that  they  never 
have  heard  of  the  failure  of  a farm  Mutual  managed 
by  farmers  alone. 

Let  it  he  repeated  again  and  again  that  there  is 
no  business  in  the  known  world  which  can  show  as 
good  a record  as  these  same  farm  Mutuals  managed 
by  the  farmers  themselves. 

Compare  again  the  failures  among  the  Mutuals 
with  the  business  records.  Count  the  mercantile 
firms  in  any  city,  then  count  those,  who  through  lack 
of  success  or  actual  bankruptcy,  have  gone  out  of 
business  during  the  last  two  decades,  and  it  will  be 
found  that  the  dead  outnumber  the  living.  It  is 
doubtful  if  there  is  a city  or  a town  in  the  whole 


OF  MUTUAL  INSURANCE 


61 


country  where  one-half  of  the  firms  started  during 
the  last  twenty  years  are  still  alive.  Against  this 
pnt  the  record  just  given  and  the  result  is  ten  to  one, 
in  favor  of  the  Mutuals. 

OTHER  EVIDENCE. 

There  is  still  other  evidence  on  this  question. 
The  State  Insurance  Commissioner  of  Illinois  has 
computed  the  amount  of  assets  per  $100  of  total  risks 
in  his  state.  He  gives  it  at  $1.30  for  the  joint  stock 
companies  and  $7.68  for  the  Mutuals.  Data  for  the 
same  comparison  are  to  be  had  in  very  few  states. 
New  Hampshire  shows  $1.60  for  the  joint  stock,  to 
$2.75  for  Mutuals,  the  cash  Mutuals  only  being  given. 
Connecticut  shows  $1.80  to  $2.01,  eleven  mutuals 
only,  being  given.  Ohio  shows  $3.21  to  $6.92,  the 
town  Mutuals  not  being  included. 

Every  computation  of  this  kind  has  shown  a 
decided  advantage  on  the  side  of  the  Mutuals. 

A single  comparison  between  two  companies 
will  answer.  The  Aetna,  of  Hartford,  Connecticut, 
the  strongest  and  best  managed  joint  stock  company, 
is  taken  on  the  one  hand,  and  The  Philadelphia  Con- 
tributionship,  the  oldest  insurance  company  in  the 
United  States,  a Mutual,  on  the  other. 

NAME  COM.  BUSINESS  GROSS  ASSETS  GROSS  RISKS 

Aetna  1819  $15,306,151.13  $643,937,568.00 

Contributionship  1754  4,990,474.84  15,034,459.00 

Compute  these  ratios  and  see  which  is  the 
strongest. 

To  sum  up,  the  public  records,  the  testimony  of 
the  State  officials  where  the  Mutuals  are  numerous, 


62 


A HAND  BOOK 


with  but  a single  dissenting  voice,  and  that  one  dis- 
trusted, give  evidence  that  the  Mutuals  are  more  en- 
during than  the  joint  stock  companies.  The  failures 
are  far  fewer  in  proportion  to  the  number,  and  when 
a great  conflagration  sweeps  over  a city,  it  is  the 
Mutual  which  stands  the  shock.  A comparison  of 
resources,  the  real  test  of  ability  to  pay,  shows  tiiat 
in  proportion,  the  Mutuals  are  far  better  prepared 
for  a storm  than  are  the  old  line  companies.  In 
short,  the  charge  of  weakness,  so  often  made  against 
the  Mutuals,  is  a pure  fabrication  of  the  basest  kind. 

These  facts  should  be  scattered  broadcast,  and 
the  true  state  of  the  case  put  before  the  people.  The 
Mutuals  have  been  on  the  defensive  too  long.  They 
should  assume  the  aggressive  at  once  and  let  their 
opponents  do  the  defensive  work. 

The  reason  why  farm  Mutuals  were  made  the 
basis  of  comparison  in  this  article  is  that  there  was 
no  possible  method  of  classifying  the  others  as  the 
data  were  incomplete.  In  some  states  there  was  no 
distinction,  in  others  the  basis  was  different.  An 
attempt  to  classify  the  Mutuals  from  reading  their 
reports,  met  with  no  success.  There  is  also  another 
reason,  these  Mutuals  have  been  derided,  sneered  at 
and  so  outrageously  vilified,  that  it  seemed  that  they 
had  a special  claim  to  a good  defense. 

COUNTERFEIT  MUTUALS. 

That  Mutuals  never  fail  is  not  claimed.  All 
that  is  asserted  is  that  the  per  cent  of  failures  is 
smaller  among  the  Mutuals  than  among  the  joint 
stock  companies.  The  old  line  companies  circulate 


OF  MUTUAL  INSURANCE 


63 


lists  of  failed  Mutuals.  Some  of  these  should  be 
charged  up  to  the  old  lines.  In  New  York  State, 
years  ago,  joint  stock  companies  were  organized 
with  20  per  cent  paid  up  and  80  per  cent  in  notes. 
They  called  themselves  Mutuals,  hut  they  had  not  a 
single  co-operative  feature.  Most  of  them  failed. 
They  are  all  charged  up  to  the  Mutuals  in  these 
lists. 

Iowa  furnishes  another  illustration.  There 
were  several  so  called  Mutuals  there  which  are 
known  as  ‘ 6 stock  mutuals.  ’ ’ They  are  not  recognized 
as  Mutuals.  Some  have  failed,  some  have  organ- 
ized as  joint  stock  companies.  It  is  only  a question 
of  time  when  all  will  go,  yet  they  are  charged  up  as 
“Failed  Mutuals.’ ’ 

Swindlers  have  claimed  to  he  agents  for  Mu- 
tuals which  never  existed,  have  collected  premiums 
and  then  absconded.  These  are  put  down  as  ‘ 4 Failed 
Mutuals.”  Every  shift  or  device  to  swell  the  list 
has  been  adopted  and  yet  in  proportion  to  the  num- 
ber of  joint  stock  companies  which  have  become 
bankrupt  it  is  still  insignificant. 

The  joint  stock  fire  insurance  companies  have 
invested  heavily  in  the  stocks  and  bonds  of  the  sev- 
eral western  railroads.  The  interest  of  these  great 
corporations  are  bound  up  together.  The  Mutuals 
are  organized  in  the  interests  of  the  people.  Shall 
they  he  crushed  out  to  leave  the  field  free  to  great 
trusts? 

Who  are  the  men  who  advocate  these  changes? 
They  are  the  agents  of  the  old  line  companies.  Have 
they  any  interest  in  common  with  the  mutual  policy 


64 


A HAND  BOOK 


holder ? How  did  they  treat  the  farmer  in  the  hard 
times  years  ago?  How  many  farms  did  these  men 
help  the  insurance  companies  to  foreclose  on? 

A CONFESSION  OF  WEAKNESS. 

There  is  another  argument  in  favor  of  the  Mu- 
tuals that  cannot  be  gainsaid  or  refuted.  It  is  that 
joint  stock  companies  resort  to  legislation  to  shut  out 
the  competition  of  the  Mutuals.  No  man  or  set  of 
men  will  use  such  means  if  it  can  possibly  he  avoided. 
They  are  the  last  resort  and  a confession  of  weak- 
ness. Looking  after  the  necessary  legislation  is 
troublesome  and  expensive  even  if  there  is  no  actual 
bribery.  There  is  a continual  fight  on  hand.  Monop- 
olies are  unpopular  and  the  people  will  demand  un- 
friendly legislation  and  it  will  cost  something  to  re- 
sist that,  and  the  resulting  public  prejudice  will  make 
itself  felt  with  courts  and  juries.  Business  men 
avoid  all  these  whenever  they  can  and  so  would  the 
joint  stock  company  if  it  could.  But  the  average 
American  who  knows  a good  thing  when  he  sees  it 
has  learned  the  truth  about  the  Mutuals.  He  has 
seen  that  they  are  safer  and  cheaper.  There  is  no 
evading  the  conclusion.  Then  the  old  liners  go  to 
the  legislature  with  a batch  of  innocent  looking  laws 
designed  to  protect  the  people.  They  go  through. 
And  then  the  lawyers  begin  to  construe  them  and 
before  long  they  are  construed  into  all  sorts  of  pro- 
hibition against  the  Mutuals.  To  have  asked  for  this 
legislation  openly  and  frankly  would  have  been  to 
have  defeated  it.  The  fact  that  such  legislation  has 


OF  MUTUAL  INSURANCE 


65 


to  be  smuggled  through  is  another  evidence  against 
the  joint  stock  companies. 

STATISTICS  PROVE  IT. 

The  Insurance  Year  Book  for  1905-1906  con- 
tains some  interesting  matter.  The  National  Board 
Tables  show  that  in  the  decade,  1871-1880  inclusive, 
the  number  of  joint  stock  companies  in  the  United 
States,  whose  statistics  that  body  obtained  reached 
its  maximum  average,  162.  This  number  diminished 
to  98  in  1896,  then  rose  to  127  in  1899  and  fell  to  112 
at  the  present  date.  Their  total  of  foreign  and  home 
companies  combined  is  now  144.  The  average  in- 
surance written  annually  by  the  United  States  Com- 
panies was  in  1871-1880,  $4,858,438,135,  in  1904  the 
amount  was  $16,724,  349,  419.  That  is,  while  the  num- 
ber of  companies  has  diminished  over  thirty  per 
cent,  the  business  has  increased  almost  three  hun- 
dred and  fifty  per  cent. 

There  are  some  companies  not  included  in  these 
figures  for  on  page  233  the  Year  Book  gives  figures 
which  show  a decrease  in  the  number  of  home  and 
foreign  companies  from  1900  to  1904  inclusive,  from 
321  to  303  or  18,  five  of  this  was  in  the  foreign  com- 
panies. Deducting  the  68  foreign  companies  from 
the  total  number  there  remains  235  as  the  net  total 
of  home  stock  companies.  During  this  period  the 
number  of  Mutuals  large  enough  to  be  reported  by 
the  Year  Book  increased  from  172  in  1900  to  212  in 
1904,  a net  growth  of  40. 

5 


66 


A HAND  BOOK 


The  census  report  for  the  decade  1881-1890  in- 
clusive, shows  that  535  United  States  joint  stock 
companies  did  business  during  that  period.  Of  these 
five  changed  their  name  and  174  disappeared,  leav- 
ing 356  in  existence  at  the  end  of  the  decade.  At 
present  the  latest  estimate  is  215,  which  agrees  very 
closely  with  the  Year  Book  figures. 

The  period  from  1881  to  1905  has  been  one  of 
growth,  new  towns  have  been  built  and  the  older 
ones  have  enlarged  their  borders.  Insurable  prop- 
erty has  increased  rapidly  and  with  it  the  amount  of 
insurance  written.  But  the  joint  stock  system  pre- 
sents the  anomalous  spectacle  of  an  increasing  busi- 
ness, transacted  by  a decreasing  number  of  compan- 
iee  and  with  a decreasing  capital. 

That  this  is  legitimate  no  one  will  believe.  One 
of  two  things  must  be  true.  Either  the  joint  stock 
system  is  structurally  weak,  is  inherently  wrong,  or 
that  it  is  concentrating  into  a trust.  There  is  no 
other  conclusion,  there  is  no  escaping  from  the 
dilemma. 

This  Year  Book  also  contains  a table  or  list  of 
failed  or  retired  insurance  companies,  both  old  line 
and  Mutual.  It  gives  the  date  of  failure,  withdrawal, 
reinsurance,  merger,  or  whatever  else  took  place. 
It  is  fairly  and  carefully  made  out  and  is  probably 
as  near  correct  as  possible.  It  is  not  summed  up  but 
a casual  inspection  will  show  that  it  more  than  cor- 
roborates the  figures  given  elsewhere  in  this  chapter. 


OF  MUTUAL  INSURANCE 


67 


ANOTHER  ATTACK. 

A recent  issue  of  an  old  line  journal  says  that 
“what  the  premium  payers  want  are  concerns  that 
will  pay  losses  and  only  the  stock  companies  can  be 
depended  on  for  that.” 

The  figures  of  accepted  authorities  on  insurance 
matters  will  furnish  the  best  refutation  of  that  state- 
ment. 

The  census  reports  for  the  decade  1881-1890 
show  that  the  failures  among  the  Mutuals  were  7.2 
percent  of  the  entire  number,  the  failures  among  the 
old  line  companies  were  32.6  percent— the  net  ratio 
being  four  to  one,  in  favor  of  the  Mutuals. 

The  Spectator  Insurance  Year  Book  for  1905 
gives  an  up  to  date  list  of  failures,  withdrawals, 
mergers,  etc.  It  shows  that  the  ratio  in  favor  of  the 
Mutuals  is  increasing  steadily. 

Mr.  F.  J.  Martin’s  paper  published  elsewhere, 
a full  and  faithful  compilation,  gives  the  compara- 
tive resources  of  the  two  classes.  The  Stock  Com- 
panies carry  in  all,  $4.90  to  each  $1000  of  insurance. 
The  cash  ability  of  the  Mutuals  is  $6.37  per  $1000, 
or  in  round  numbers,  one  and  one  fourth  times  as 
much  as  the  amount  carried  by  the  old  liners. 

The  total  liabilities  of  the  stock  companies 
equals  68  per  cent  of  their  assets,  the  total  liabilities 
of  the  Mutuals  equals  34  per  cent  of  their  assets. 
This  is  2 to  1,  in  favor  of  the  Mutuals. 


68 


A HAND  BOOK 


The  figures  stand  thus  far, 

Mut  Joint 
ual  Stock 

Strength  as  indicated  by  failures, 4.  1 

Strength  as  indicated  by  resources  to  $1000.  .1.25  1 
Strength  as  indicated  by  assets  to  liabilities.  .2.  1 

There  are  still  other  considerations.  There  is 
a mercantile  maxim  that  the  lower  the  expenses  the 
greater  the  ability  to  meet  obligations.  The  average 
expense  of  the  joint  stock  companies,  acording  to 
Mr.  Martin’s  table  is  $2.91  per  $1000  at  risk,  exclud- 
ing fire  losses.  This  is  only  45  cents  less  than  the 
average  total  expenses  of  the  Mutuals,  fire  losses 
and  all. 

The  probability  of  contested  losses  cannot  be 
assertained  from  the  published  reports,  but  so  far 
as  the  amount  is  given  they  indicate  a far  greater 
proportion  among  the  old  liners  than  among  the 
Mutuals. 

Adding  all  these  probabilities  together,  it  is 
very  easy  to  see  that  instead  of  the  old  liners  being 
the  only  ones  that  can  be  depended  upon,  the  ratio  is 
heavily  against  them  in  every  case,  and  that  they  re- 
alize this  fact  is  evidenced  by  their  course,  for  it  is 
always  the  weaker  in  the  fight  that  makes  the  most 
outcry. 

But  enough  space  has  been  taken  up  with  this 
matter.  It  is  not  a pleasant  subject.  The  Manual 
does  not  make  a sweeping  condemnation  for  there 
are  many  joint  stock  companies  which  are  honorably 
conducted  and  which  never  resort  to  questionable 


OF  MUTUAL  INSURANCE 


69 


tactics.  But  the  flood  of  circulars,  the  venomous 
letters,  and  the  frequent  misrepresentation,  all  de- 
signed to  injure  the  Mutuals,  require  an  answer  and 
it  is  hoped  that  no  further  allusion  to  the  subject 
may  he  necessary. 

AGGRESSIVENESS  A DUTY, 

No  man  liveth  to  himself.  Bound  together  by 
ties  as  old  as  the  creation,  mankind  will  always  be 
dependent  on  each  other.  In  social  life  the  Golden 
Rule  is  the  paramount  law.  In  statesmanship  there 
is  a maxim  “The  first  duty  of  a minority  is  to  be- 
come a majority.”  This  means  that  whoever  de- 
velops a useful  idea,  a beneficent  theory  or  an  advan- 
tageous plan  of  action,  is  in  duty  bound  to  publish 
abroad  his  discovery,  to  convert  others  to  his  own 
belief,  that  they,  as  well  as  himself,  may  enjoy  its 
benefits.  The  mercantile  world  recognizes  this,  even 
its  most  flamboyant  advertising  is,  on  its  face,  an  in- 
vitation to  share  in  some  benefit,  to  purchase  some 
useful  article,  or  if  nothing  more,  to  share  in  the 
benefits  resulting  from  a reduction  of  manufacture. 
This  duty  appeals  strongly  to  the  Mutuals.  They 
have  a system  which  they  find  to  be  beneficial.  This 
alone  would  impose  upon  them  a duty.  But  there  is 
another  phase,  the  Mutual  plan  dispenses  with  the 
immense  aggregations  of  wealth  which  are  piled  up 
under  the  joint  stock  plan.  The  danger  of  these, 
from  a moral  standpoint,  may  easily  be  estimated 
by  any  one  who  has  read  the  astounding  develop- 
ments among  certain  life  insurance  companies  of 
New  York  City. 


70 


A HAND  BOOK 


It  is  true  that  New  York  is  an  exceptional  city, 
and  that  these  were  exceptional  companies,  it  is  also 
true  that  the  exposures  may  do  something  to  check 
the  evil.  But  so  far  there  is  no  evidence  that  any 
one  of  the  parties  concerned  in  these  transactions 
has  been  brought  to  justice  or  has  even  lost  social 
position. 

Turn  now  to  the  great  assessment  companies. 
With  just  a working  balance  in  their  treasuries,  and 
a small  emergency  reserve,  these  organizations  are 
paying  their  losses  promptly  and  with  a far  less  pro- 
portional expense.  And  having  no  heavy  invest- 
ments to  make,  they  are  not  entangled  with  railroad 
stocks  and  bonds,  or  any  other  corporation  invest- 
ments. 

If  the  Mutuals  occupied  the  position  to  which 
they  are  entitled,  if  they  had  the  business  which  real- 
ly belongs  to  them,  how  much  of  this  evil  would  be 
avoided.  It  is  then  clearly  the  duty  of  the  Mutuals 
to  advocate  their  plans  and  theories  as  aggressively 
as  possible,  not  merely  to  increase  their  own  business 
and  influence,  but  to  do  their  share  of  the  duty  which 
falls  upon  every  man,  to  so  live  that  he  shall  leave 
the  world  better  than  he  found  it. 


CHAPTER  V. 


IMPORTANT  STATISTICS. 

In  constructing  tables  to  show  how  much  has 
been  saved  to  the  assured  by  the  Mutuals,  it  is  custo- 
mary to  compare  the  rates  of  the  Mutuals  and  the 
joint  stock  companies  as  they  are  at  present.  This 
does  not  cover  the  ground.  In  many  localities  the 
rates  of  the  stock  companies  have  been  cut  fifty  per 
cent  or  more  since  the  organization  of  the  Mutuals. 
While  the  policy  holders  of  the  Mutuals  are  not  di- 
dectly  benefited  by  this,  other  people  are,  and  as 
there  is  no  reason  to  believe  that  these  reductions 
would  have  been  made  had  not  the  Mutuals  come  into 
the  field,  they  should  have  credit  for  the  saving.  The 
fair  method  is  to  take  the  cost  of  Mutual  insurance 
and  compare  it  with  the  rates  of  the  joint  stock  com- 
panies when  there  was  no  competition. 

F.  J.  MARTIN’S  LETTER. 

‘ ‘ Mr.  C.  F.  Mingenback, 

1 4 Concerning  your  request  to  furnish  an  article 
for  your  Mutual  Insurance  Manual,  treating  of  the 
comparative  cost  of  mutual  and  stock  company  in- 
surance, I think  the  most  valuable  information  I can 
furnish  you  would  be  a tabulation  showing  the  insur- 
ance carried  and  the  cost  of  same  in  both  mutual  and 
stock  companies  in  all  the  States.  I,  therefore,  sub- 
mit these  tabulations  and  will  simply  call  attention 
to  some  comparisons. 


—71 


STOCK  COMPANIES  1904. 


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tie.  It  is  the  most  valuable  paper  in  this  line  ever 
furnished  to  the  public.) 


MUTUAL  COMPANIES,  January  1.  1905. 


74 


A HAND  BOOK 


Liabilities 

248,628 

162,025 

489,095 

91,602 

302,068 

731,073 

144,21  2 

145,686 

6,958 

211,709 

649,978 

6,464,951 

1,731,567 

408,225 

104,522 

345,416 

93,665 

162,804 

Cash 

Assets 

105,844 

124,894 

2,283,318 

2,837,280 

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138,804 

1,788,043 

13,346,162 

2,106,233 

678,336 

617,670 

577,277 

154,029 

284,728 

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76 


A HAND  BOOK 


“It  will  be  seen  that  all  the  American  stock 
companies  have  insurance  in  force  to  the  amount  of 
$21,309,535,367.  The  net  premiums  collected  during 
the  year  amounted  to  $158,883,712.  This  is  an  aver- 
age of  $7.45  for  each  $1,000  of  insurance  in  force. 
Of  this  amount  $2.91  on  each  $1,000  of  insurance  was 
consumed  for  expenses.  The  insurance  in  force  is 
about  20  per  cent  more  than  the  amount  written,  con- 
sequently the  rate  charged  on  the  insurance  written 
amounted  to  about  89.4  c. 

“The  mutuals  had  insurance  outstanding  of 
$6,100,036,041.  The  average  cost  for  both  losses  and 
expenses  was  $3.36  per  thousand,  or  but  little  more 
than  the  amount  consumed  for  the  expense  of  the 
stock  companies. 

“In  the  tables  published  in  the  minutes  of  the 
National  Association  two  years  ago,  it  was  shown 
that  the  insurance  carried  by  American  stock  com- 
panies was  $17,671,153,442.  Therefore,  in  the  two 
years  the  insurance  carried  by  the  American  stock 
companies  has  increased  20  per  cent.  The  mutual 
companies  two  years  ago  carried  insurance  to  the 
amount  of  $4,591,375,173,  so  that  the  mutuals  have 
made  an  increase  of  35  per  cent. 

6 ‘ The  insurance  written  by  the  stock  companies 
in  their  own  home  states  two  years  ago  was  $3,067,- 
739,394.  Last  year  it  amounted  to  $2,755,002,499, 
showing  an  actual  decrease.  The  amount  in  force, 
however,  is  about  20  per  cent  more  than  the  insur- 
ance written,  therefore  the  insurance  in  force  by  all 


OF  MUTUAL  INSURANCE 


77 


the  stock  companies  in  their  home  states  amounts  to 
approximately  $3,306,002,998. 

“The  mutual  companies  are  carrying  in  their 
own  home  states  $4,832,073,625,  or  about  46  per  cent 
more  than  the  amount  carried  by  the  stock  com- 
panies. Of  the  whole  amount  carried  by  stock  com- 
panies in  their  own  home  states,  63  per  cent  of  the 
amount  is  in  the  State  of  New  York,  where  the  stock 
companies  have  succeeded  in  maintaining  laws  un- 
favorable to  mutual  insurance. 

“It  is  also  interesting  to  notice  the  comparison 
in  strength  of  the  two  classes  of  companies.  The 
cash  surplus  of  the  stock  companies  amounts  to  $4.90 
for  each  $1,000  of  insurance  in  force,  while  the  cash 
surplus  of  the  mutual  companies  averages  $6.37. 
The  surplus  of  the  stock  companies  would  pay  their 
average  cost  for  less  than  eight  months.  The  cash 
surplus  of  the  mutual  companies  would  pay  their 
cost  for  more  than  twenty-two  months. 

“The  liabilities  of  the  stock  companies  equal 
68  per  cent  of  their  assets.  The  liabilities  of  the 
mutuals  is  less  than  34  per  cent  of  their  assets. 

“In  compiling  these  statistics  no  attempt  has 
been  made  to  show  the  ratio  of  failures  in  the  two 
classes  of  companies.  However,  the  statistics  in  the 
minutes  of  the  National  Association  published  two 
years  ago  show  that  for  twenty-three  years  the  per- 
centage of  failures  among  mutual  companies  has 
only  been  one-fourth  as  great  as  the  percentage  of 
failures  in  stock  companies.  It  is  not  believed  that 
the  last  two  years’  record  has  made  any  material 
change  in  this  ratio. 


78 


A HAND  BOOK 


“It  is  interesting  to  note  that  as  a result  of  the 
Baltimore  fire,  only  one  mutual  company  was  forced 
to  liquidate,  namely,  the  Atlas  Mutual  of  Boston, 
which  was  really  insolvent  before  the  fire  and  which 
never  was  at  any  time  on  a substantial  footing. 

“It  is  also  interesting  to  note  that  the  largest 
loss  paid  by  any  company  in  the  Baltimore  fire  was 
paid  by  a mutual,  namely,  the  Baltimore  Equitable, 
which  paid  over  $1,900,000,  and  which  still  has  a 
handsome  surplus  left. 

“The  system  of  insurance  which  has  nearest 
reached  perfection,  is  that  of  the  factory  mutuals, 
in  which,  under  their  careful  inspection  service,  the 
losses  have  been  reduced  to  the  minimum.  Many 
factory  owners  say  that  the  inspection  service  they 
receive  is  well  worth  all  the  insurance  costs. 

“These  factory  mutuals  have  taken  classes  of 
risks,  such  as  cotton  mills,  on  which  the  stock  com- 
panies would  not  make  a rate  of  less  than  $25  per 
thousand,  and  by  improved  methods  of  construction 
and  equipment  have  reduced  the  cost  to  less  than 
$1.00  per  thousand. 

1 4 Yours  most  truly, 

“F.  J.  Martin.” 


CHAPTER  VI. 


THE  ECONOMICAL  VIEW. 

TWO  HOSTILE  CAMPS. 

In  discussing  the  science  of  economics,  men  di- 
vide into  two  hostile  camps,  one  holding  that  all 
that  is  results  from  evolution.  The  laws  of  nature 
are  fixed,  any  attempt  to  interfere  with  their  opera- 
tion will  only  recoil  most  disastrously  upon  the  head 
of  the  one  who  meddles  with  the  due  course  of  the 
universe.  In  short,  it  is  a species  of  fatalism;  what 
is,  must  be.  It  is  hardly  necessary  to  say  that  this  is 
a favorite  theory  with  those  whose  wealth  has  been 
acquired  by  practices  not  generally  approved.  Not 
long  since,  a book  was  written  with  the  design  of 
showing  that  one  of  the  great  corporations,  whose 
methods  have  been  the  subject  of  much  adverse  criti- 
cism, was  only  the  production  of  the  forces  of  the 
time,  that  such  a company  was  a necessity,  and  if 
this  one  had  not  met  the  long  felt  want  another 
would  have  developed;  that  the  members  of  this 
company  were,  therefore,  free  from  all  responsibil- 
ity for  the  bankruptcies  of  those  whose  business  they 
crushed,  whose  fortunes  they  ruined,  and  of  whose 
property  they  became  possessed.  It  is  a somewhat 
remarkable  co-incidence  that  complimentary  copies 
of  this  book  were  received  by  a number  of  people 

—79 


80 


A HAND  BOOK 


who  were  very  much  interested  in  securing  dona- 
tions for  benevolent  purposes  along  a line  in  which 
one  member  of  this  company  had  already  made 
heavy  investments  at  the  expense  of  the  public.  It 
may  be  said  that  all  of  that  class,  whether  in  the 
great  trusts  of  the  world  or  in  the  petty  village  pool, 
are  ardent  admirers  of  this  doctrine  which  sings  such 
a sweet  lullaby  to  their  uneasy  consciences. 

THE  WAR  ON  THE  WEAK. 

This  theory  of  necessity,  of  development  along 
fixed  lines,  is  not  always  honestly  held.  If  it  were, 
then  the  intentional  and  willful  crushing  out  of  the 
weaker  concerns  would  never  occur.  If,  as  its  advo- 
cates aver,  this  theory  foreshows  that  the  weaker 
must  go  to  the  wall,  that  there  is  no  evading  such  a 
result,  then  why  does  an  occasional  great  combina- 
-Oju  resort  to  doubtful  means  for  the  purpose  of  rid- 
ding itself  of  a small  competitor?  The  word  “ occas- 
ional ” is  used  advisedly,  for  the  Manual  believes 
that  the  average  man  is  sincere,  and  that  most 
wealth  is  gained  honestly.  It  appears  to  be  demon- 
strated also  that  a single  establishment  doing  an 
illegitimate  business  will  disturb  the  management  of 
every  other  concern  in  the  country  engaged  in  the 
same  line.  One  man  who  gets  rebates,  one  man  who 
reduces  wages,  one  man  who  cheats  in  the  quality 
of  his  goods,  will  force  all  others  to  do  the  same 
thing.  The  people  who  look  on  may  not  always  see 
through  the  matter  and  may  blame  all  the  parties, 
when  only  the  greedy  mischief  maker  should  be  cen- 
sured. 


W.  B.  LINCH,  LINCOLN,  NEBRASKA. 

Mr.  Linch  is  a native  Nebraskan,  was  born  in  Cass  county  in 
18*56,  assisted  in  the  organization  of  the  Farmers  Mutual  Insur- 
ance Company  of  Lincoln.  Nebraska,  in  1891.  Three  months 
after  the  organization  he  was  elected  secretary  and  still  holds 
the  position.  His  abilities  are  shown  by  the  fact  that  the  com- 
pany now  carries  $54,000,000  of  farm  insurance  in  Nebraska. 
At  the  third  meeting  of  the  National  Association  he  was 
elected  secretary  and  treasurer,  and  has  since  been  re-elected 
seven  times. 

He  is  secretary  of  the  Nebraska  Mercantile  Mutual  Insur- 
ance Company,  the  largest  exclusively  mercantile  in  the  state. 
He  is  also  one  of  the  board  of  directors  of  the  National  Mutual 
Fire  Insurance  Company  of  Omaha,  and  is  also  one  of  the  audit- 
ing committee. 


JAMES  M.  PIERCE,  DES  MOINES,  IOWA. 

James  M.  Pierce,  publisher  of  the  Iowa  Homestead,  Des 
Moines,  Iowa,  and  four  other  agricultural  and  rurul  newspapers 
and  magazines,  known  collectively  as  “The  Pierce  Publications”, 
has  been  a powerful  factor  in  the  promotion  of  Mutual  Insur- 
ance among  the  farmers  of  the  Middle  West.  When  others  have 
flinched  or  proven  to  be  “fair  weather  friends”  of  the  cause.  Mr. 
Pierce  has  staunchly  upheld  the  banner  of  Mutual  Insurance, 
lending  to  its  upbuilding  the  valuable  support  of  his  five  period- 
icals, which  have  over  a quarter  of  a million  circulation  among 
western  farmers. 


OF  MUTUAL  INSURANCE 


81 


There  are  localities  where  the  old  line  compan- 
ies do  not  join  in  the  attacks  upon  Mutnals.  The  two 
dwell  together  in  unity  and  both  are  the  better  for 
it.  But  the  flood  of  scurrilous  literature  concerning 
the  Mutuals  proves  that  there  are  companies  which 
will  stop  at  nothing  to  injure  a weaker  competitor. 
And  it  is  stated  that  recently  certain  large  life  insur- 
ance companies  of  the  east  have  been  detected  in  in- 
stigating vexatious  and  injurious  law  suits  against 
the  weaker  local  companies  in  the  middle  west,  with 
a view  of  causing  them  embarrassment.  The  com- 
panies adopting  these  tactics  show  by  their  works 
that  they  are  insincere,  that  they  do  not  believe  the 
theory  that  they  hold  their  position  by  virtue  of  the 
law  of  the  survival  of  the  fittest. 

IT  IS  DIFFERENT  WHEN  THEIR  OX  IS  GORED. 

While  the  men  composing  these  great  concerns 
hold  the  doctrine  that  their  own  enormous  acquisi- 
tions are  the  result  of  laws  for  which  they  are  in  no 
way  responsible,  they  are  far  from  holding  such  a 
theory  regarding  others. 

Should  their  pastures  be  invaded,  there  is 
trouble  at  once.  The  law  and  the  courts  are  invoked, 
legislative  lobbies  are  organized  and  every  possible 
method  is  resorted  to  that  the  interloper  may  be  shut 
out.  The  let  alone  doctrine  receives  a practical  con- 
struction which  confines  its  application  to  their  indi- 
vidual cases,  an  inconsistency  born  of  dishonesty. 

The  war  on  Mutuals  is  carried  on,  not  because 
of  their  system,  but  because  they  are  generally  small 
6 


82 


A HAND  BOOK 


and  unable  to  carry  on  a protracted  fight  in  court. 
It  is  a part  of  the  struggle  of  the  great  trusts  to  crush 
out  all  that  they  do  not  control. 

THESE  POSITIONS  DENIED. 

The  other  class  deny  all  these  positions.  They 
assert  that  the  so-called  laws  of  political  economy 
are  not  laws  at  all,  but  merely  tendencies,  that  the 
doctrine  that  there  is  a hard  and  fast  necessity  is  not 
held  by  any  of  the  great  writers  of  political  economy, 
that  it  is  not  true  anywhere  in  the  moral  universe. 
They  hold  that  no  man  is  obliged  to  rob  his  fellow 
men,  that  those  who  combine  to  oppress  the  weak  are 
enemies  of  society,  that  their  millions  are  tainted 
and  that  their  much  vaunted  benevolences  are  given, 
not  to  benefit  mankind,  but  to  purchase  the  silence  of 
the  recipients.  They  utterly  and  emphatically  deny 
that  wealth  cannot  be  secured  except  by  dishonest 
means,  and  affirm  that  the  reverse  of  this  is  always 
and  universally  true. 

Holding  these  views,  and  also  holding  that  as 
the  whole  community  prospers  each  individual  will 
prosper  with  it,  it  is  natural  that  the  great  army  of 
co-operators  and  Mutualists  should  be  found  in  ac- 
cord with  them. 

The  working  out  of  these  doctrines,  of  course, 
is  in  very  different  directions  and  leads  to  very  dif- 
ferent courses  of  action.  If  life  is  all  a chain,  the 
links  of  which  are  forged  by  an  eternal  necessity, 
nothing  can  be  done ; the  link  may  be  gold,  let  it  re- 
joice; it  may  be  iron,  let  it  accept  its  condition;  re- 
pining is  useless,  and  why  waste  energy  in  trying  to 


OF  MUTUAL  INSURANCE 


83 


change  that  which  is  unchangeable?  This  is  the 
“let  alone”  policy. 

But  the  other  theory  shows  its  nature  by  its 
works.  Believing  that  all  men  are  brothers,  it  organ- 
izes plans  for  mutual  aid,  it  opens  co-operative 
stores,  organizes  Mutual  Insurance  Companies,  and 
in  other  ways  brings  men  together  with  a view  of 
enabling  them  to  render  assistance  to  each  other. 

FRATERNALISM  IS  HONESTY. 

It  needs  no  argument  to  prove  that  the  very  soul 
of  fraternalism  is  honesty.  The  man  who  fails  to 
do  his  share,  be  that  share  a contribution  of  funds, 
a performance  of  service,  or  whatever  it  may,  is  de- 
frauding his  fellow  men.  No  permanent  and  pros- 
perous organization  of  society  or  business  is  possi- 
ble till  all  such  frauds  are  eliminated.  And  no  one 
who  is  not  willing  to  live  up  to  principle,  and  intelli- 
gent enough  to  recognize  the  true  principle  when  he 
sees  it,  is  a fit  member  of  any  co-operative  organiza- 
tion. There  are  men  who  honestly  think  that  they 
can  pay  their  way  everywhere.  So  long  as  they  do 
not  steal  they  morally  give  themselves  a clean  bill  of 
health.  But  that  is  not  enough.  This  is  proven  by 
the  conditions  of  so  many  of  our  voluntary  organi- 
zations. Men  join  lodges,  churches,  unions,  etc.,  pay 
their  dues  promptly,  but  never  attend.  They  would 
be  grossly  offended  if  they  were  told  that  they  were 
offenders  in  this  respect,  that  they  were  shirking 
their  duties,  and  that  they  were  putting  upon  other 
shoulders  the  burdens  their  own  ought  to  bear.  Yet, 
such  is  the  fact,  and  till  their  moral  senses  have  be- 


84 


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come  educated  up  to  the  proper  point,  till  their 
mental  vision  is  so  cleared  that  it  can  plainly  per- 
ceive these  facts,  the  individual  will  fall  short  of  the 
full  performance  of  his  duty. 

The  first  effort  of  co-operators  should  be  to  de- 
velop and  cultivate  this  sense  of  duty,  to  each  other. 
It  is  not  always  through  crime  that  it  is  absent; 
more  often  it  is  because  the  individual  has  never  seen 
any  real  co-operation  and  is  therefore  in  total  ignor- 
ance on  the  subject.  One  of  the  best  methods  of  ac- 
complishing the  desired  end  is  to  set  forth  to  the 
world  exactly  what  co-operation  is.  Many  things 
need  correct  definition  much  more  than  they  do  cor- 
rect arguing.  Presented  in  the  clear  light  of  accur- 
ate description  they  are  their  own  best  advocates. 
This  duty  of  explaining  and  advocating  is  itself  not 
unfrequently  neglected.  It  is  to  be  hoped  that  the 
future  may  bring  forth  a change  for  the  better  in  this 
respect. 

A THIRD  THEORY. 

Beside  the  “let  alone’ ’ theory  and  the  co-opera- 
tive theory  there  is  still  a third  proposition,  to  put 
all  men  on  a common  level.  This  is  impossible,  for 
ignorance  and  intelligence  cannot  be  held  together 
even  with  chains  of  iron.  Moreover,  if  it  were  possi- 
ble the  only  common  level  is  the  dead  level  at  the 
bottom.  The  true  ecenomy  is  that  of  co-operation, 
which  has  as  its  financial  end  the  best  possible  ser- 
vice for  the  least  possible  cost,  and  for  its  social  and 
moral  aim  the  education  and  elevation  of  each  indi- 
vidual to  the  highest  possible  position  he  can  be 
made  able  to  fill. 


OF  MUTUAL  INSURANCE 


85 


PRACTICAL  RESULTS. 

The  morality  of  the  individual  and  of  the  organ- 
ization is  affected  by  these  conditions.  An  environ- 
ment of  temptation  is  conducive  to  evil.  While  some 
temptation  seems  to  be  necessary  to  exercise  the 
moral  fibre,  and  to  prevent  men  from  degenerating 
into  mere  weaklings  whose  virtue  is  due  only  to  the 
absence  of  temptation,  there  may  be  conditions  in 
which  men  are  tried  beyond  their  power  of  resist- 
ance. To  avoid  the  possibility  of  this  it  is  well  to  do 
away  with  temptation,  as  much  as  may  be.  And  this 
is  one  of  the  services  of  co-operation.  Each  member, 
while  dealing  with  others,  is  also  doing  business  with 
himself.  And  why  should  a man  defraud  or  deceive 
himself?  And  if  services  and  goods  are  furnished 
at  cost,  why  should  there  be  adulteration  or  decep- 
tion? As  a matter  of  fact,  it  is  claimed  that  in  the 
places  where  co-operative  stores  are  able  to  procure 
unadulterated  goods  they  sell  scarcely  any  others. 
This  has  been  especially  true  of  stores  conducted 
on  the  Eochdale  plan.  Thus,  habits  of  honesty  are 
formed  and  gradually  the  tone  of  the  whole  commun- 
ity is  raised. 

It  is  not  claimed  that  co-operation  is  available 
in  all  lines  of  business  nor  that  none  but  co-operators 
are  honest.  No  such  sweeping  claims  are  made.  But 
the  positions  taken  above  are  fairly  and  substantial- 
ly true,  co-operation  is  a moral  force  which  acts  for 
good  on  the  co-operator,  and  on  the  community  in 
which  he  lives. 


CHAPTER  VII. 


WHAT  IS  INSURANCE? 

Insurance  is  developed  from  a desire  to  break 
the  force  of  the  blow  in  case  of  loss.  It  first  mani- 
fested itself  as  a form  of  sympathy  for  the  unfortun- 
ate and  some  of  the  older  Mutuals  retain  traces  of 
this  in  such  names  as  “The  Helping  Hand,”  “The 
Contributionship,  ” etc.  Commercial  insurance  be- 
gan on  the  sea.  Merchants  were  deterred  from  fit- 
ting out  ships  for  voyages  because  they  feared  risk- 
ing their  entire  ship  and  cargo. 

Wealthy  individuals,  who  met  at  Lloyd’s  Coffee 
House  in  London,  in  order  to  relieve  the  difficulty 
and  encourage  commerce,  began  insuring  by  making 
personal  subscriptions  of  the  amount  each  was  will- 
ing to  risk,  generally  not  over  $500  to  $750,  charging 
such  premiums  as  were  agreed  upon.  That  practice 
is  still  kept  up  to  some  extent  at  the  present  day,  but 
most  of  the  business  has  fallen  into  the  hands  of 
large  companies. 

THE  FUNDAMENTAL  PRINCIPLE. 

The  fundamental  principle  is  indemnity  for  loss, 
insurance  which  accomplishes  more  than  this  is  eith- 
er fraud  or  gambling.  Nor  can  an  illegal  business 
or  an  unlawful  enterprise  be  insured.  Nor  can  in- 

86— 


OF  MUTUAL  INSURANCE 


87 


demnity  be  guaranteed  in  any  case  in  which  the  pub- 
lic interest  will  be  endangered.  In  days  gone  by, 
sailors  were  not  permitted  to  insure  their  wages  on 
the  ground  that  this  would  tend  to  make  them  less 
careful  in  navigating  the  vessel.  But  now  anything 
which  does  not  contravene  honesty  or  good  morals 
may  be  protected  by  insurance  in  favor  of  those  who 
have  an  interest  in  it.  The  words,  “have  an  inter- 
est’ 9 are  used  because  it  is  not  the  thing  which  is  in- 
sured but  the  person.  And  because  of  this  personal 
element  insurance  does  not  pass  with  sale  of  prop- 
erty. No  one  is  allowed  to  insure  that  in  which  he 
has  nothing  at  risk.  There  is  scarcely  anything 
which  cannot  be  insured  against  loss  from  almost 
any  cause,  but  the  scope  of  this  work  does  not  extend 
beyond  loss  by  fire,  lightning  and  tornado  and  wind- 
storm, and  to  the  loss  of  buildings  and  their  contents, 
live  stock  and  grain  on  farms,  and  similar  risks, 
and  the  discussion  must  be  kept  within  these  limits. 

As  society  developed,  so  did  the  forms  of  insur- 
ance. Two  great  classes  came  into  being,  the  joint 
stock  and  the  Mutual.  The  Lloyds  still  exist,  but 
they  form  but  a very  small  class.  The  joint  stock 
companies  which  furnish  indemnity  for  pay  and  at 
a profit  and  the  co-operatives,  or  Mutuals,  which 
furnish  insurance  at  cost,  practically  cover  the  field. 

COMMON  DEFINITIONS. 

A common  legal  definition,  incorporated  into 
the  statutes  of  Maine  and  adopted  elsewhere  with 
some  modifications,  is:  “A  contract  of  insurance, 


88 


A HAND  BOOK 


life  excepted,  is  an  agreement  by  which  one  party, 
for  a consideration,  promises  to  pay  money  or  its 
equivalent,  or  to  do  some  act  of  value  to  the  assured 
upon  the  destruction,  or  injury  of  something  in 
which  the  other  party  has  an  interest.”  This  is 
formal  and  complete.  It  expresses  the  general  idea 
admirably.  It  brings  out  the  fact  that  in  all  bona 
fide  insurance  there  are  these  three  elements:  An 
insurer,  something  at  risk,  and  a party  having  an 
interest  therein. 

It  is  more  briefly  stated  thus:  Insurance  is  a 
contract  whereby  one,  for  a consideration,  under- 
takes to  indemnify  another  if  he  shall  suffer  loss. 
Any  contingent  or  unknown  event,  past  or  future, 
which  may  damnify  a person  having  an  insurable 
interest  or  create  a liability  against  him,  may  be  in- 
sured against,  excepting  those  which  are  contrary 
to  public  policy,  for  example,  chances  in  a lottery. 
But  insurance  upon  that  in  which  one  has  no  inter- 
est is  a wager  in  law  and  is  legally  null  and  void. 

THE  ELEMENTS  OF  THE  CONTRACT. 

Entering  into  the  contract  are  several  elements : 
The  insurer  who  agrees  to  indemnify,  the  insured, 
the  person  to  be  indemnified,  an  insurable  interest, 
and  a contingent  danger.  By  persons  are  meant 
either  single  individuals,  or  combinations  such  as 
partnerships  or  corporations,  the  legal  sense  of  the 
word  “ persons”  including  them  all.  It  will  be  seen 
that  in  each  insurance  contract  one  party  insures 
another  party  against  damage  to  some  interest  by  an 


OF  MUTUAL  INSURANCE 


89 


unknown  peril.  The  common  expression— “A’s 
house  is  insured’ ’ is  not  correct.  It  is  not  the  house 
which  is  insured,  but  an  interest  in  it.  This  explains 
why  if  he  sells  or  mortgages  his  house  the  policy  is 
void,  his  interest  has  changed. 

An  interest  in  property  or  relation  thereto,  or 
liability  in  respect  thereof  such  that  a contemplated 
peril  might  injure  the  owner  directly,  is  an  insur- 
able interest.  But  one  cannot  insure  that  in  which 
he  has  no  actual  interest  based  on  actual  ownership 
or  on  a valid  contract  for  it,  nor  can  he  he  insured 
for  more  than  his  interest  in  it. 

All  gambling  insurance  is  void.  There  is  one 
exception  to  the  rule  that  a change  of  interest  with- 
out consent  of  the  insurer  voids  the  policy.  If  the 
change  occurs  by  the  death  of  the  insured  the  in- 
surance still  holds  good,  and  passes  to  the  person 
taking  the  interest,  and  in  some  states  a transfer 
from  one  of  the  owners  in  a joint  interest  to  another 
owner  in  that  interest  does  not  render  the  policy 

These  definitions  are  descriptions  of  insurance 
as  a business  transaction  between  two  persons.  The 
following  describes  insurance  in  its  wider  relations 
to  the  public. 

“A  common  agreement  among  many  different 
persons,  that  upon  each  paying  a fixed  sum  into  the 
common  fund,  the  proceeds  acquired  shall  be  used  to 
repair  any  loss  which  may  befall  any  of  the  contri- 
butors.” The  fixed  sum  is  the  premium  and  this 
phrase,  as  well  as  the  expression  “ common  fund” 
renders  the  definition  inapplicable  to  the  Mutuals 
generally.  Mutual  insurance  is  “A  common  agree- 


90 


A HAND  BOOK 


ment  between  many  different  persons  that  the  con- 
tributions of  the  many  shall  be  used  to  repair  any 
loss  which  may  befall  anyone  of  the  parties  to  such 
common  agreement.,, 

ANOTHER  VIEW. 

Viewed  from  still  another  standpoint  insurance 
against  a loss  is  a means  of  breaking  the  force  of 
the  blow  upon  one  individual  by  dividing  it  among 
many.  That  this  was  originally  the  intention  is 
shown  by  the  names  of  the  oldest  societies,  4 ‘Hand 
in  Hand,”  “ Contributionship, ” “Helping  Hand,” 
etc.  These  were  all  Mutuals.  In  fact  there  were  no 
other  than  Mutuals  till  the  development  among  the 
wealthy  classes  of  that  particular  style  of  benevo- 
lence which  feels  itself  called  upon  to  take  charge 
of  the  affairs  of  men  of  moderate  means  at  a cost  of 
“all  the  traffic  will  bear.”  Since  then  the  joint 
stock  company  has  done  the  most  of  the  business, 
and  by  fair  means  or  foul  has  driven  the  Mutuals 
from  many  a field  rightfully  their  own,  and  from 
which  they  should  never  have  suffered  themselves 
to  be  driven.  But  they  have  learned  the  old  lesson 
that  eternal  vigilance  is  the  price  of  liberty,  and  will 
not  again  be  caught  napping,  and  the  Mutual  phase 
of  insurance  is  again  the  important  one. 

INDEMNITY. 

Invisible,  and  generally  intangible,  indemnity 
is  an  abstract  idea  which  many  do  not  comprehend. 
There  are  persons  who  cannot  see  why,  at  the  end  of 


OF  MUTUAL  INSURANCE 


91 


a year  in  which  they  have  had  no  loss  they  should 
be  called  upon  to  pay  for  this  vague  non-existence. 
At  least,  that  is  the  way  in  which  their  mental  pro- 
cess runs.  But  is  indemnity  a vague  abstraction  or 
an  actual  reality?  The  members  of  an  insurance 
company  agree  to  pay  for  all  the  property  destroyed 
by  fire  during  a year.  They  have  a million  dollars 
at  risk  and  on  the  average  pay  in  something  less  than 
four  thousand  dollars  a year,  or  forty  cents  on  each 
hundred  dollars  worth  of  property  owned  by  the 
members.  The  sufferers  by  fire  receive  pay  for  their 
losses,  but  what  have  the  others  had?  They  have 
had  just  the  same  promise  of  remuneration  that  the 
losers  had  and  it  is  to  that  promise  that  value  at- 
taches in  the  business  world. 

When  a merchant  makes  a report  of  his  assets 
for  the  purpose  of  obtaining  credit,  he  finds  in  the 
blank  which  he  is  to  fill  out,  a line  “Insurance  car- 
ried   ” and  that  is  estimated  in  making 

up  the  amount  which  it  is  safe  to  credit  him.  So 
when  a man  procures  a loan  he  finds  that  uninsured 
buildings  are  considered  as  very  poor  security  but 
that  the  insurance  policy  will  go  at  its  face.  This 
value  becomes  a reality  in  the  cases  cited  as  soon  as 
the  policy  is  issued.  And  if  indemnity  is  thus  a real 
something  of  value  in  getting  mercantile  credits  and 
loans  from  banks  and  elsewhere  it  must  certainly  be 
worth  something  to  the  person  insured.  The  safety 
which  insurance  affords  against  fire  and  storm,  or 
to  put  it  more  accurately,  the  surety  that  the  de- 
struction which  may  come  from  these  elements  will 


92 


A HAND  BOOK 


be  paid  for  so  that  the  insured  will  find  his  loss  made 
good,  is  certainly  not  a mere  barren  ideality.  It  is 
something  positive  which  can  be  comprehended. 
But  how  is  the  value  of  this  indemnity  ascertained! 
By  experience,  keeping  records  of  losses  for  years 
until  an  average  is  arrived  at  which  is  correct 
enough  for  all  practical  purposes.  Insurance,  then, 
has  nothing  visionary  about  it  nor  is  there  any  taint 
of  gambling.  It  is  simply  a plain  ordinary  business 
proposition. 

CO-OPERATIVE  OR  MUTUAL  INSURANCE. 

Co-operation,  in  its  broad  sense,  is  a joint  action 
of  any  two  or  more  causes  producing  a result.  In 
mercantile  circles  the  word  applies  to  the  harmoni- 
ous and  concerted  action  of  men  associated  together 
for  a definite  purpose.  But  when  used  as  synony- 
mous with  mutual  it  refers  to  organizations  in  which 
each  patron  is  a member  and  receives  back  the  entire 
profits  on  the  business  he  brings  to  the  organization. 
Its  function  is  the  distribution  of  wealth,  that  is, 
instead  of  permitting  the  profits  on  business  to  re- 
main in  the  hands  of  a few  stockholders,  it  distrib- 
utes them  among  the  general  mass  of  customers  who 
constitute  the  membership.  Co-operative  or  Mutual 
societies  are  peculiar  in  their  treatment  of  capital. 
They  use  capital  in  their  business,  they  accumulate 
funds,  they  have  stock  and  membership  fees,  but 
capital,  as  such,  gets  no  share  in  the  profits.  If 
hired,  it  gets  the  current  rate  of  interest,  no  more, 
no  less.  And  the  dividends  are  paid,  not  to  capital 


OF  MUTUAL  INSURANCE 


93 


or  to  capitalists  but  to  persons.  The  profits  go  not 
to  the  investment,  but  to  the  business.  For  example, 
in  England  the  co-operative  stores  were  started  with 
a small  capital  subscribed  by  friends  of  the  enter- 
prise. Each  of  these  shares  was  owned  by  a differ- 
ent individual  and  paid  an  interest  of  five  per  cent 
annually.  But  the  profit  all  went  to  the  owners  in 
proportion  to  their  purchases.  And  in  dividing  this 
profit,  expenses  and  interests  were  first  paid,  the 
material  in  hand  made  good,  2Vz  per  cent  of  the 
profits  set  aside  for  increasing  the  common  fund, 
and  the  balance  credited  or  returned  to  the  patrons 
in  proportion  to  their  business.  It  must  be  borne  in 
mind  that  the  broad  distinction  lies  between  dividing 
the  profits  equally  among  the  shares  of  capital 
stock,  regardless  of  those  whose  business  furnished 
these  profits,  and  distributing  these  profits  among 
the  membership  in  proportion  to  their  business  with- 
out any  regard  to  any  capital  which  may  be  invested. 

Some  Mutual  Associations,  in  their  infancy, 
have  been  obliged  to  start  with  a capital  stock  or 
guarantee  fund,  on  which  dividends  were  paid,  but 
they  had  a proviso  that  they  might  purchase  the 
stock  at  any  time  at  par  value.  And  they  bought  it 
in  as  soon  as  they  could.  Many  fraternal  societies 
have  erected  their  lodge  buildings  in  this  manner. 
This  is  an  exceptional  case  and  is  only  mentioned  to 
show  that  Mutual  Societies  can  succeed  under  very 
adverse  circumstances. 


94 


A HAND  BOOK 


PROFIT  SHARING  NOT  MUTUALISM. 

Profit  sharing  is  sometimes  classed  with  Mutual- 
ism or  co-operation.  This  does  not  always  hold  good 
for  while  all  mutualism  is  profit  sharing,  all  sharing 
is  not  mutualism.  The  store  which  returns  a portion 
of  its  profits  to  its  customers  as  a means  of  increas- 
ing its  trade  and  the  factory  which  sets  aside  a por- 
tion of  its  profits  as  an  addition  to  the  wages,  are 
not  mutual,  for  in  both  cases  the  capital  stock  re- 
ceives dividends  and  neither  the  customer  nor  the 
workmen  have  any  voice  in  the  direction  of  affairs. 

This  illustration  will  be  sufficient  to  show  that 
careful  discrimination  is  necessary  in  deciding 
whether  any  particular  organization  is  or  is  not  en- 
titled to  be  classed  among  co-operative  or  Mutual 
societies. 

Mutual  organizations  are  found  in  almost  every 
line  of  business.  Their  methods  of  organization 
vary  with  their  objects  and  their  surroundings,  but 
the  principle  of  furnishing  goods  or  services  at 
cost  is  always  and  every  where  kept  in  view. 

Some  are  managed  by  the  co-operators  directly, 
others  by  agents  or  managers  employed  for  the  pur- 
pose. The  larger  ones  are  generally  handled  by 
trustees  or  directors,  many  of  whom  serve  for  very 
small  remuneration. 

With  regard  to  the  capital  employed,  the  differ- 
ences are  equally  wide.  Some  have  absolutely  none, 
levying  assessments  from  time  to  time  as  needed, 
while  on  the  other  hand  many  of  the  co-operative 
stores  have  enormous  stocks  and  some  of  the  older 


OF  MUTUAL  INSURANCE 


95 


Mutual  Insurance  Companies  have  large  reserves. 
These  accumulations  of  capital  are  justified  by  the 
fact  that  the  reduction  of  cost  which  follows  the  ad- 
vantage given  by  the  capital  will  in  time  more  than 
repay  those  who  contributed  it  or  from  whose  profits 
it  was  taken.  A good  illustration  of  this  is  furnished 
by  the  co-operative  stores  of  Great  Britain.  They 
were  all  retail  establishments  for  a long  time  till 
finally  they  accumulated  the  means  to  start  whole- 
sale stores  of  their  own.  These  at  once  reduced  cost 
materially  and  soon  paid  for  themselves.  So  the 
New  England  Fire  Mutuals,  which  have  large  guar- 
antee funds,  say  that  these  have  been  the  cause  of 
reduced  expenses  and  increased  business,  and  no 
one  thinks  of  giving  them  up. 

In  the  matter  of  profits  there  is  the  settled  prin- 
ciple that  they  belong  to  the  membership  but  there 
are  numerous  methods  of  dividing  them.  Some 
Mutuals  avoid  profits,  doing  all  Insurance  at  actual 
cost,  paying  no  losses  nor  expenses  till  after  they 
accrue,  but  most  make  a charge  and  return  the  un- 
used portion  as  profits.  Some  charge  current  rates, 
others  fix  their  own,  some  divide  the  profits  annually 
and  at  stated  periods  make  a supplementary  divi- 
dend of  the  remainder. 

Some  charge  membership  or  initiation  fees, 
some  require  a stock  subscription  while  others  ad- 
mit every  one  without  preliminary  charge.  Some 
divide  profits  equally  with  every  customer,  others 
confine  their  distribution  to  those  holding  a paid 
membership.  Others  still  have  a differential  in 


96 


A HAND  BOOK 


favor  of  long  standing  and  they  shut  out  transient 
customers.  The  last  is  frequent  among  Mutual  In- 
surance organizations. 

A REPETITION. 

At  the  risk  of  some  repetition  it  may  be  well  to 
emphasize  the  fundamental  difference  between  the 
joint  stock  and  the  Mutual  companies.  It  is  some- 
times said  that  the  one  has  stock  while  the  other  has 
not.  This  is  not  conclusive,  as  institutions  may  have 
a capital  stock  and  yet  be  purely  Mutual.  The  case 
of  the  co-operative  stores  illustrates  this.  There 
must  be  a stock  of  goods  to  start  with  and  the  funds 
to  buy  this  are  usually  hired  by  the  co-operators, 
who  pay  interest  thereon.  The  fact  that  they  gener- 
ally advance  these  funds  themselves  and  in  amounts 
of  fixed  value,  which  they  term  shares,  sometimes 
confuses  people,  but  it  should  not.  This  capital  is 
simply  hired  as  they  hire  the  building  in  which  they 
do  business;  what  they  pay  for  it  is  charged  up  to 
expenses.  They  pay  this  stated  amount  whether  the 
business  is  good  or  bad,  whether  the  profits  have 
been  much  or  little.  And  this  expense  must  be  paid 
whether  there  are  any  dividends  paid  or  not.  In 
the  joint  stock  company  this  is  reversed.  The  custo- 
mers get  nothing.  The  expenses  are  first  paid  and 
the  entire  balance  goes  as  a dividend  on  the  stock,  if 
there  is  no  balance,  then  there  is  no  dividend.  The 
object  of  all  this  discussion  is  that  people  may  be 
able  to  discriminate  clearly  between  joint  stock  com- 
panies, Mutual  or  co-operative  enterprises,  and  so- 
cialism. 


Hr 


HON.  E.  M.  COFFIN,  LINCOLN,  NEBRASKA. 

Mr.  Coffin  is  prominent  in  the  State  of  Nebraska,  in  fact  he 
has  made  himself  a reputation  in  many  states  of  the  Union.  He 
is  an  authority  on  Mutual  Insurance.  He  is  the  legal  adviser  of 
the  national  association  and  is  also  chairman  of  the  legislative 
committee.  He  is  president  of  the  National  Mutual  Fire  Insur- 
ance Company  of  Omaha  and  holds  a number  of  other  important 
positions.  He  is  a hard  worker  and  has  won  many  important 
battles  for  the  cause  of  Mutual  Insurance  for  which  he  deserves 
the  gratitude  of  the  whole  fraternity. 


W.  B.  GASCHE,  TOPEKA,  KANSAS. 

Mr.  Gasche  is  a native  of  Ohio.  In  1895  he  became  interested 
in  the  question  of  Co-operative  Insurance  and  was  one  of  the 
leaders  in  organizing  the  Alliance  Co-operative  Insurance  Com- 
pany, one  of  the  successful  and  progressive  Mutuals  of  Kansas. 
In  1900  he  was  elected  president  and  still  holds  the  position. 
Since  1900  his  company  sent  him  to  every  annual  meeting  of  the 
National  Association,  and  is  the  Western  member  of  the  trans- 
portation committee  of  the  body.  He  was  largely  instrumental 
in  organizing  the  Kansas  State  Association  of  Mutual  Fire  In- 
surance Companies  and  has  been  president  of  that  body  since  it 
started. 


CHAPTER  VIII. 


THE  AGENT. 

The  agent  is  one  who  acts  for  another.  Among 
Insurance  men  the  agents  are  those  who  solicit  busi- 
ness for  the  company.  Mutuals,  whose  territory 
does  not  exceed  a few  square  miles,  sometimes  dis- 
pense with  solicitors,  but  the  great  mass  of  Insurance 
business  is  brought  to  the  companies  by  their  agents, 
who  secure  it  by  personal  canvass.  Hence  the  char- 
acter and  qualifications  of  the  agent,  his  abilities, 
his  methods  and  his  relations  to  the  company  all  be- 
come questions  of  the  greatest  importance,  and  upon 
their  proper  solution,  will  depend,  in  most  cases,  the 
success  or  failure  of  the  organization. 

WHO  HE  IS  AND  WHAT  HE  SHOULD  BE. 

What  kind  of  a man  must  the  agent  be?  He 
should  be  endowed  with  unflinching  integrity,  good 
common  sense,  keen  perceptive  powers,  a fair  knowl- 
edge of  men  and  things,  and  full  control  of  his  tem- 
per. He  should  stand  well  in  his  community,  be  able 
to  make  a favorable  impression  upon  new  acquaint- 
ances, and  to  be  persistent  without  being  annoying 
and  be  able  to  bring  men  to  a conclusion  without 
seeming  to  drive  them.  He  should  be  well  informed 
on  the  subject  of  Insurance  in  general  and  should 

7 —97 


98 


A HAND  BOOK 


thoroughly  understand  the  methods  of  his  own  com- 
pany. He  should  have  the  by-laws  and  the  policy 
so  thoroughly  at  command  that  he  can  turn  at  once 
to  any  provision  and  explain  it  fully  while  the  pros- 
pective member  reads  it.  This  will  enable  him  to 
avoid  the  common  error  of  quoting  or  reading  too 
much.  Men  understand  what  they  read  themselves 
much  better  than  they  do  what  is  read  to  them,  and 
many  an  over  zealous  agent  has  lost  a risk  by  read- 
ing so  much  that  he  has  fairly  overwhelmed  the  cli- 
ent. It  is  impossible  to  give  full  directions  in  such 
cases.  Common  sense  and  tact  are  the  only  guides. 

Country  farmers  of  good  judgment  and  mature 
experience  and  possessing  other  qualifications  allud- 
ed to,  make  the  very  best  agents.  But  they  must  be 
sought  after.  Like  first  class  men  in  any  other  line, 
they  are  not  under  the  necessity  of  looking  after  em- 
ployment, it  comes  to  them.  Moreover,  they  are 
scarce.  And  they  are  not  cheap.  But  in  the  long 
run,  they  are  the  most  economical.  They  give  better 
satisfaction,  avoid  quarrels,  reject  undesirable  risks 
and  save  in  losses  and  expenses  more  than  their 
extra  cost. 

Such  an  agent  will  never  exceed  the  scope  of 
his  authority.  All  cases  of  doubt  he  will  refer  to  the 
home  office.  He  will  solicit  business  for  his  own 
company  exclusively,  and  will  not  dabble  in  other 
lines.  He  will  do  business  in  the  customary  way,  fol- 
lowing approved  methods,  never  misrepresenting, 
always  doing  exact  justice,  and  never  getting  his 
company  into  trouble.  And  when  the  application  is 


OF  MUTUAL  INSURANCE 


99 


made  out,  his  description  will  be  accurate.  Guess 
work  he  will  not  tolerate,  but  will  measure  in  every 
case,  and  his  reports  will  be  practically  adjustments 
in  advance.  He  will  finish  up  business  as  he  goes 
and  when  he  secures  a risk  it  will  be  for  all  time. 
The  policy  holder  will  be  a permanent  customer  of 
the  company  and  the  agent.  Such  a man  will  keep 
his  eye  on  the  best  risks  and  will  secure  desirable 
members  who  could  not  be  reached  by  the  ordinary 
solicitor. 

A bad  agent  is  worse  than  none.  The  average 
farmer  detests  the  man  who  refuses  to  work  but 
picks  up  his  living  here  and  there  in  some  mysterious 
way.  To  appoint  such  a man  agent  is  almost  equiv- 
alent to  quitting  business  in  his  locality. 

HIS  TRANSACTIONS  MAY  BIND  THE  COMPANY. 

A brief  sketch  of  some  late  decisions  will  show 
the  application  of  what  has  been  said.  The  tendency 
is  to  make  the  transactions  of  the  agent  binding  on 
the  company,  this  rule  being  subject  only  to  limita- 
tions common  in  all  similar  cases  and  which  are  sup- 
posed to  be  generally  known  by  the  public.  This 
doctrine  is  very  distasteful  to  many  corporations 
and  numerous  are  the  shifts  and  devices  by  which 
they  attempt  to  evade  it.  Various  provisions  are 
printed  in  the  contract  or  policy  which  the  would-be 
customer  is  obliged  to  sign,  the  purpose  of  which  is 
to  relieve  the  company  from  all  responsibility  for 
the  acts  of  the  agent.  The  courts  have  invariably 
ruled  that  these  were  null  and  void  and  have  held 


100 


A HAND  BOOK 


the  company  to  a reasonable  responsibility  for  the 
acts  of  the  agent. 

THE  LAW— DECISIONS  QUOTED. 

Massachusetts  has  a law  that  “An  insurance 
agent  or  broker  who  acts  for  a person  other  than 
himself  in  negotiating  a contract  of  insurance  shall 
be  held  to  be  the  company’s  agent  whatever  condi- 
tions or  stipulations  may  be  contained  in  the  con- 
tract or  policy.”  This  is  in  line  with  the  decisions 
alluded  to  above.  The  principle  enunciated  is  that 
a man  cannot  be  agent  for  insurer  and  insured  at 
the  same  time.  But  “Whether  one  acts  as  agent  for 
the  insurer  or  insured  is  to  be  determined  by  the 
circumstances  of  the  particular  case.  One  cannot 
be  agent  for  both  parties.”  See  J.  C.  Smith  & Wal- 
lace Co.,  vs.  Prussian  Nat.  Ins.  Co.,  54  At.  Rep. 

An  agent  of  a Mutual  Hail  Company  settled 
with  an  insured  suspended  for  non-payment  of  as- 
sessment. He  had  no  authority  to  adjust  losses,  but 
did  so,  taking  note  which  the  company  retained.  It 
afterward  notified  the  member  that  an  assessment 
for  another  year  was  due.  Held  that  by  ratifying 
the  act  of  the  agent,  the  company  had  restored  in- 
sured to  membership.  Barritt  vs.  Des  Moines  Mut . 
Hail  and  Cyclone  Ins.  Asso.,  94  Mo.  Rep. 

Where  the  applicant  answers  the  questions  of 
an  agent  truthfully,  and  the  agent,  without  his 
knowledge,  and  to  aid  in  effecting  insurance,  modi- 
fies or  falsifies  those  answers,  the  company  is  es- 
topped from  relying  on  the  untruthfulness  of  the 


OF  MUTUAL  INSURANCE 


101 


description  as  a defense  to  an  action  on  the  policy. 

Receiving  and  retaining  a preminm  makes  the 
company  responsible.  It  should  he  returned  or  tend- 
ered to  the  policy  holder  if  collected  without  author- 
ity by  an  agent. 

In  order  that  an  insurance  company  may  suc- 
cessfully assert  that  its  agent  has  exceeded  his  pow- 
ers in  waiving  conditions  of  a policy,  the  assured 
must  have  actual  notice  of  the  limitations  placed  on 
agent’s  powers,  either  by  having  his  attention  called 
to  the  stipulation  of  the  policy  containing  such  limi- 
tation, or  otherwise.  The  constructive  notice  afford- 
ed by  the  circumstance  that  the  policy  contains  the 
limitation  is  insufficient. 

In  general,  an  insurance  company,  being  in  pos- 
session of  certain  facts  at  the  time  of  issuing  the 
policy,  in  case  of  loss  is  estopped  from  taking  ad- 
vantage of  those  facts.  If  the  agent  knows  those 
facts  the  company  is  generally  supposed  to  know 
them  also. 

The  Minnesota  Supreme  Court  decided  that  the 
company  was  liable  on  a policy  having  no  gasoline 
permit,  for  a loss  from  fire  arising  from  the  use  of 
gasoline,  because  the  agent  knew  it  was  used. 

MUST  BE  PROMPT. 

An  agent  should  finish  up  business  promptly  or 
at  least  get  it  committed  to  writing.  A’s  policy  ex- 
pires Friday  noon.  He  notifies  the  agent  the  day 
before  that  he  wishes  to  renew.  The  next  day  that 
agent  is  called  away  and  leaves  word  that  it  will  be 


102 


A HAND  BOOK 


all  right.  Before  he  gets  back  A’s  building  burns. 
The  company  claims  that  A overstepped  his  author- 
ity, a law  suit  results,  the  company  is  beaten,  but  the 
policy  holder  is  out  an  attorney  fee. 

A large  proportion  of  insurance  law  suits  orig- 
inate in  just  such  affairs  as  the  one  supposed  above. 
In  fact  there  is  no  more  prolific  cause  of  quarrels 
than  the  same  habit  of  half  doing  business,  and  then 
putting  off  the  other  half  to  a more  convenient  sea- 
son. 

RESPONSIBLE  IF  HE  WORKS  FOR  WORTHLESS  COMPANY. 

An  insurance  agent  must  use  reasonable  care 
to  avoid  defrauding  his  patrons.  As  it  is  within  his 
power  to  ascertain  the  standing  of  any  company  by 
writing  to  the  Insurance  Department  of  the  State  in 
which  it  is  located,  he  is  without  excuse  if  he  sells  a 
policy  in  a worthless  company.  The  New  York 
Weekly  Underwriter  says:  “ Edward  C.  Beirne, 
local  fire  insurance  agent  at  Port  Jervis,  N.  Y.,  is- 
sued a policy  of  fire  insurance  from  a Chicago  ‘wild 
cat’  company.  The  property  burned.  The  ‘cat/  as 
usual,  refused  to  pay.  The  property  owner  sued 
the  agent,  whose  defense  was  that  he  acted  as  a 
broker  in  good  faith,  believing  the  company  solvent. 
The  appellate  court  would  not  accept  this  plea,  nor 
the  New  York  Court  of  Appeals.  The  agent  was 
held  responsible  for  the  insurance  with  interest  and 
costs.  The  same  doctrine  has  been  held  elsewhere. 

Two  late  decisions,  one  in  Iowa  and  one  in  New 
York,  have  thrown  light  on  the  responsibility  of  the 


OF  MUTUAL  INSURANCE 


103 


agent.  In  each  case  an  insurer  effected  insurance 
in  several  companies,  an  agent  making  the  division. 
In  each  case  there  was  a loss  and  in  each  case  one  of 
the  companies  was  an  irresponsible  “wild  cat”.  The 
insurer  brought  suit  against  the  agent  who  claimed 
that  he  was  only  a broker  and  not  responsible.  The 
court,  however,  held  differently  and  brought  in  a 
verdict  against  him.  This  seems  reasonable.  That 
an  agent  is  hound  to  use  reasonable  care  to  avoid 
representing  a fraudulent  company  or  selling  worth- 
less goods,  is  consonant  with  common  sense.  In 
justice,  the  agent  and  the  employer  are  mutually 
responsible  for  each  other,  and  to  each  other,  and 
the  agent  is  more  responsible  because  the  assured 
trusts  everything  to  him. 

responsible:  for  urns  clerks. 

Courts  will  hold  the  agents  responsible  for  what 
is  done  in  their  name.  They  must  look  after  their 
clerks  as  other  business  men  are  compelled  to  do. 
An  agent  for  a “wild  cat”  in  Minnesota  procured 
power  of  attorney  from  the  assured,  authorizing 
him  to  purchase  insurance  wherever  he  could.  Held 
that  under  that  power  of  attorney  he  had  a right  to 
purchase  insurance  where  he  chose.  It  would  seem 
that  in  this  case  the  power  of  attorney  made  him 
agent  of  the  assured  rather  than  of  the  company, 
and  shifted  the  responsibility. 


104 


A HAND  BOOK 


PEOPLE  SHOULD  SEE  THE  AGENT’S  CERTIFICATE. 

People  ought  to  know  something  about  the  men 
they  deal  with.  There  is  very  little  excuse  for  a 
man  who  is  defrauded  by  a bogus  agent  or  a “wild 
cat”  company.  The  agent  should  have  his  certifi- 
cate and  be  called  on  to  show  it.  The  standing  of  the 
company  can  be  learned  by  addressing  the  State  Sup- 
erintendent of  Insurance,  for  no  commissioner  will 
issue  a license  to  an  agent  for  a “wildcat.” 

WILL  STUDY  HIS  BUSINESS. 

The  agent,  who  wishes  to  be  as  effective  as  possi- 
ble, will  study  his  own  business  thoroughly ; he  will 
know  all  about  Mutuals  in  general,  and  his  own  com- 
pany in  particular.  He  will  understand  its  princi- 
ples. He  will  make  a study  of  other  methods  that 
he  may  be  able  to  show  the  advantages  of  his  own. 
He  will  be  watchful  and  learn  all  that  is  going  on  and 
will  report  to  the  company  all  cases  that  he  does  not 
fully  understand,  and  will  call  for  decisions  on  law 
points  and  for  statistics  whenever  he  needs  them. 

He  will  study  the  community  and  when  he  finds 
a good  risk  that  is  not  insured  in  a Mutual,  he  will 
ascertain  why.  To  do  this  requires  skill  and  tact. 
Some  men  will  inform  the  agent  the  first  time  they 
fall  into  conversation,  others  need  to  be  asked,  and 
others  still,  need  to  be  treated  as  if  the  agent  did  not 
care.  There  are  not  a few  people  in  this  world  who 
will  tell  everything  they  know  if  one  only  gives  them 
time  and  asks  no  questions. 


OP  MUTUAL  INSURANCE 


105 


In  doing  this,  agents  are  only  acting  as  do  other 
business  men.  If  a grocer,  for  example,  discovers 
that  he  gets  no  trade  from  a certain  family,  he  does 
not  rest  until  he  learns  the  reason  and  whether  the 
trouble  can  be  remedied.  That  is  just  good  business, 
and  the  agent  should  follow  the  example.  In  these 
modern  days,  trade  does  not  come  of  itself,  the 
rustler  gets  it.  It  is  not  sufficient  to  have  a good 
thing,  the  people  must  be  told  of  it.  Advertising  has 
become  a necessity,  and  whether  by  signs,  circulars, 
newspaper  articles  or  in  whatever  method  seems  fit, 
the  man  who  gets  business  must  somehow  advertise. 

WILL  COVER  HIS  TERRITORY. 

The  good  agent  will  also  thoroughly  cover  his 
territory.  He  will  look  after  the  risks  carefully, 
omitting  none.  This  will  be  profitable  to  himself  and 
the  company.  He  will  secure  a permanent  good  will 
and  as  he  rides  over  his  field  will  seldom  make  a trip 
during  which  he  does  not  call  upon  several  men.  By 
the  exercise  of  a little  care  he  can  make  appoint- 
ments with  those  at  a distance  or  in  out  of  the  way 
places  and  thus  save  himself  much  time. 

The  agent  should  keep  a record  in  which  are 
noted  the  particulars  of  every  policy,  such  as  the 
amount,  the  date  and  the  expiration,  together  with 
such  private  memoranda  as  he  sees  fit  to  make.  The 
courts  have  decided  that  this  book  is  the  private  per- 
sonal property  of  the  agent,  to  be  disposed  of  by  him 
or  retained,  as  he  desires.  Such  a book  in  time 
acquires  a value  in  use.  It  is  a great  convenience  to 
the  agent.  He  will  be  able  to  keep  a close  watch 


106 


A HAND  BOOK 


upon  expirations  and  anticipate  the  action  of  com- 
petitors for  business. 

The  agent  should  look  after  new  buildings.  They 
are  generally  excellent  risks.  It  is  well  for  him  to 
be  on  good  terms  with  the  carpenters  and  builders 
and  also  with  the  lumber  dealers.  He  can  get  valu- 
able information  from  them. 

HOW  TO  SECURE  GOOD  AGENTS. 

MUST  GO  AFTER  THEM. 

The  officers  of  the  company  must  go  after  them. 
This  is  generally  the  work  of  the  President  or  Secre- 
tary, but  the  Directors  can  render  efficient  aid.  First 
class  farmers  make  the  best  agents.  The  company 
should  select  such  men  in  localities  where  they  wish 
to  have  agents,  and  then  secure  their  services  by 
personal  solicitation.  In  fact,  the  company  gets  an 
agent  about  as  an  agent  gets  a risk,  it  locates  him 
first  and  then,  at  an  opportune  moment,  makes  the 
contract.  There  is  room  for  exercise  of  discretion 
here.  While  the  farmers  are  generally  the  best, 
there  is  a class  of  energetic  young  men  who  teach  in 
the  winter,  and  busy  themselves  about  something  else 
the  rest  of  the  year.  As  they  often  have  from  four 
to  seven  months  out  of  school,  they  have  ample  time 
to  canvass  for  the  company.  Occasionally  one  of 
them  who  has  a home  of  his  own  and  teaches  in  his 
own  neighborhood,  makes  an  ideal  agent.  And  now 
and  then  there  are  men  already  in  business,  who  can 
be  induced  to  take  the  interests  of  the  company  in 
charge.  But  as  previously  stated,  these  men  will 


OF  MUTUAL  INSURANCE 


107 


not  come  of  themselves,  the  company  must  go  after 
them. 

In  securing  agents  it  is  well  to  bear  in  mind  that 
the  trend  of  modern  decisions  is  toward  making  the 
company  responsible  for  everything  that  the  agent 
does  and  says,  and  that  a man  who  cannot  be  trusted 
that  far  is  not  desirable  as  an  agent.  The  Mutual 
standard  for  agents  is  high,  very  high. 

The  agent  should  never  forget  that  he  is  the 
company  so  far  as  most  policy  holders  are  concerned. 
He  transacts  all  the  business ; they  trust  everything 
to  him  and  expect  fair  treatment.  If  he  fails  in  this 
respect,  he  will  lose  business  for  himself  and  for  the 
company.  Attempts  have  been  made  on  the  part  of 
various  organizations  to  evade  the  force  of  this,  but 
without  avail.  It  is  just  that  it  should  be  so.  Other- 
wise, the  policy  holder  would  be  making  a contract 
binding  on  himself  and  on  nobody  else,  with  all  the 
rights  on  the  side  of  the  company  and  none  on  his 
own. 


MUST  HAVE  COMMON  SENSE. 

Men  are  expected  to  exercise  common  sense  and 
to  know  how  to  transact  ordinary  business,  but  in 
special  lines  they  must  rely  largely  upon  the  repre- 
sentations of  those  with  whom  they  are  dealing.  It 
is  so  in  Insurance,  it  is  so  in  every  day  transactions. 
Agents  should  remember  this  and  be  careful  never 
to  misrepresent  or  mislead  in  the  least. 

After  all  the  various  plans  for  the  prevention  of 
incendiarism  are  considered,  the  honest  agent,  who 
will  not  over  insure,  is  the  one  effective  remedy. 


108 


A HAND  BOOK 


ARE  NECESSARY. 

It  is  frequently  proposed  that  Mutuals  shall 
dispense  with  agents  and  that  the  soliciting  be  done 
by  the  members  of  the  company.  Human  nature  is 
not  generally  so  constructed.  In  rare  cases,  in  small 
communities,  the  plan  is  feasible,  but  generally  it  is 
a failure.  The  agent  is  a necessity  at  present. 

MUST  LOOK  AFTER  THE  RECORDS  OF  APPLICANTS. 

Agents  should  he  particular  in  looking  up  a 
man ’s  record.  If  a would  be  policy  holder  has  been 
moving  from  place  to  place  and  has  had  several 
losses,  it  is  well  to  turn  him  down.  Sometimes  it 
may  be  necessary  to  demand  references,  especially 
when  the  amount  of  insurance  desired  seems  large. 

When  the  Fire  Marshal  laws  of  the  several 
states  are  perfected  the  professional  incendiaries 
will  be  detected  and  their  descriptions  will  be  furn- 
ished to  the  Insurance  companies  and  their  careers 
will  be  ended.  Meanwhile  agents  should  be  on  their 
guard  against  them. 

HOW  SHALL  THE  AGENT  BE  PAID? 

THREE  PLANS  IN  USE. 

There  are  three  common  answers  to  this  quest- 
ion : By  a fixed  salary,  by  a fixed  fee  on  each  policy, 
or  by  a commission.  Each  of  these  methods  has  its 
advocates.  It  is  claimed  that  the  salary  plan  is  the 
best  because  it  presents  no  temptations  to  wrong 
doing.  The  agent  gets  his  pay  without  regard  to  the 


OF  MUTUAL  INSURANCE 


109 


amount  of  business,  hence  he  will  not  take  risks 
where  the  moral  hazard  is  great,  nor  will  he  over 
insure.  This  is  true  in  theory,  but  in  actual  practice 
it  will  be  found  that  if  the  commissions  on  the  busi- 
ness he  brings  in  do  not  amount  to  very  nearly  his 
salary,  his  services  will  be  dispensed  with.  It  is  so 
in  all  departments  of  business.  In  the  great  retail 
establishments  of  the  larger  cities  it  is  becoming  a 
custom  to  discharge  clerks  unless  their  sales  are  so 
large  that  their  salaries  fall  below  a certain  per  cent 
of  the  profits.  So  while  the  salary  plan  seems  to  be 
the  ideal,  it  is  generally  only  the  commission  method 
in  disguise. 


COMMISSION. 

With  regard  to  the  commission  plan  of  remun- 
eration, it  is  argued  that  it  stimulates  the  agent  to 
more  diligent  effort  and  objected  that  it  is  a constant 
temptation  to  the  agent  to  take  bad  risks  and  to  over 
insure.  Both  of  these  positions  are  correct  and  it 
depends  upon  the  integrity  of  both  company  and 
agent  what  the  result  shall  be.  If  the  company  is 
greedy,  it  will  wink  at  the  misdeeds  of  the  agent  and 
there  will  be  any  amount  of  illegitimate  business.  If 
the  company  is  reputable,  it  will  compel  its  agent  to 
do  a fair  business  though  the  agent  and  the  policy 
holder  may  juggle  together  to  swindle  the  company 
and  sometimes  with  success.  When  both  the  agent 
and  the  company  aim  at  fair  dealing,  it  matters  very 
little  whether  the  agent  is  paid  a salary  or  a commis- 
sion. 


110 


A HAND  BOOK 


FIXED  FEE. 

There  are  many  experienced  Insurance  men  who 
advocate  paying  a fixed  sum  for  each  risk.  One  of 
the  most  successful  Mutuals  in  the  United  States 
says : ‘ ‘ The  method  of  obtaining  business  is  entirely 
different  from  that  of  stock  companies,  inasmuch  as 
the  agents  of  the  Oregon  Fire  Relief  Association, 
instead  of  receiving  a commission  on  the  amount  of 
each  risk  they  write,  receive  a fixed  fee  which  is  the 
same  whether  they  write  a risk  for  $100  or  one  for 
$1000.  ’ ’ The  reason  for  this  is  obvious,  it  eliminates 
the  tendency  on  the  part  of  the  agent  to  over  insure 
where  over  insurance  is  desired. 

‘ 4 This  one  element  in  the  business  method  of  the 
association  has  in  no  small  measure  contributed  to 
the  remarkable  reduction  in  the  loss  ratio  compared 
with  the  Stock  Companies.” 

In  Wisconsin,  where  the  Mutuals  have  been  pre- 
eminently successful,  nearly  all  the  city  and  village 
Mutuals  pay  a percentage  commission,  hut  of  the 
hundred  and  ninety-nine  Township  Mutuals  reported 
Dec.  31,  1903,  only  three  pay  a percent  commission. 
Of  others,  a few  have  no  agents,  a few  pay  a per 
diem,  but  the  greatest  number  pay  a fixed  fee  per 
application  or  policy. 

Statistics  from  other  states  are  lacking,  but  the 
expense  account  seems  to  indicate  that  the  commis- 
sion plan  is  generally  followed.  In  many  cases  the 
companies  have  been  in  existence  several  years,  and 
have  old,  well  tried  and  faithful  agents.  With  these 
the  method  of  renumeration  makes  no  difference. 


OF  MUTUAL  INSURANCE 


111 


the  agents  will  do  good  work.  In  all  such  cases  it  is 
well  to  be  very  slow  in  making  changes.  The  whole 
question  is  more  a matter  of  men  than  methods. 

SALARY. 

And  yet,  it  seems  to  be  very  generally  true  that 
among  Mutuals  which  confine  themselves  to  single 
territories  or  within  narrow  limits,  the  commission 
system  is  scarcely  known.  The  members  do  the  work 
gratuitously,  a modest  per  diem  is  paid,  or  a flat  rate 
per  policy.  As  the  field  of  the  company  widens  out, 
the  commission  comes  in  until,  in  the  larger  cities, 
there  is  no  other  method.  The  old  line  companies 
established  this  precedent  and  the  Mutuals  must  fol- 
low it  for  the  present. 

As  has  been  remarked  the  environments  often 
govern.  In  the  local  Mutual  where  “everybody 
knows  everybody”  and  much  work  is  done  gratuit- 
ously, the  question  is  easily  solved ; in  the  large  com- 
panies, whose  field  is  several  counties  or  even  a 
whole  state,  the  problem  is  much  more  complicated. 
But  in  either  case  is  there  any  method  which  will 
make  a bad  man  honest,  or  a knave,  sincere  1 

The  following  from  section  30,  Insurance  Laws 
of  Massachusetts,  while  not  of  general  application, 
shows  how  the  legislature  views  the  commission  plan 
so  far  as  its  influence  over  agents  and  other  officers 
is  concerned: 

“No  officers  or  other  person,  whose  duty  it  is  to 
determine  the  character  of  the  risks,  and  upon  whose 
decision  the  application  shall  be  accepted  by  a Mu- 


112 


A HAND  BOOK 


tual  fire  company,  shall  receive,  as  any  part  of  his 
compensation,  a commission  npon  the  premiums,  but 
his  compensation  shall  be  a fixed  salary,  and  such 
share  of  the  net  profits  as  the  directors  may  deter- 
mine. Nor  shall  such  officer  or  person  aforesaid,  be 
an  employee  of  any  officer  or  agent  of  the  company.” 

IN  CASE  OF  LOSS. 

DUTIES  OF  THE  AGENT. 

The  agent  shall  look  after  the  interests  of  the 
company  and  while  he  represents  the  whole  member- 
ship and  is  employed  by  them,  should  treat  the  loser 
fairly  and  even  liberally,  and  thus  gain  friends  and 
patrons  for  the  company.  He  should  impress  upon 
the  loser  that  the  company  is  ready  and  willing  to 
pay  all  losses,  only  requiring  the  same  proof  of  loss 
that  would  be  required  by  any  ordinary  business 
men.  It  is  well  enough  to  congratulate  him  on  this 
fact,  but  the  agent  should  not  fix  the  amount  of  the 
loss  nor  lead  him  to  expect  a large  sum.  When  the 
joint  stock  agents  come  around  and  tell  the  loser  that 
he  will  never  get  a cent,  as  they  often  do,  the  agent 
should  make  a note  of  it,  and  when  the  loss  is  settled 
he  should  get  a written  statement  of  the  fact,  and 
that  statement  should  be  kept  before  the  old  line 
agent  henceforth  and  forever. 

TRIFLING  LOSSES. 

Trifling  losses  the  agent  may  be  permitted  to 
adjust  himself,  and  sometimes  in  cases  where  there 


OF  MUTUAL  INSURANCE 


113 


can  be  no  possible  dispute  he  may  be  employed  to 
settle  the  matter;  generally,  an  adjuster  should  be 
employed.  And  if  the  agent  has  been  scrupuously 
careful  in  drawing  up  the  policy,  the  work  of  the 
adjuster  will  be  much  easier,  and  there  will  be  almost 
a certainty  of  satisfactory  settlement. 

TALKS  WITH  TOUGH  CUSTOMERS. 

These  talks  are  such  as  may  take  place  at  any 
time  in  the  average  town  and  among  average  men. 
The  agent  is  supposed  to  be  an  upright,  honorable 
man,  respected  by  his  fellow  citizens  and  in  the  busi- 
ness for  all  the  commission  he  can  legitimately  get 
out  of  it.  He  has  studied  the  subject  of  Insurance 
and  is  familiar  with  it.  He  knows  all  about  his  own 
company,  and  has  its  by-laws  at  his  tongue’s  end. 
He  is  a resident  of  the  community  and  is  acquainted 
with  its  citizens  and  since  taking  up  the  business  of 
Insurance  he  has  studied  them  somewhat  carefully 
with  a view  to  securing  their  patronage. 

With  the  everyday  farmer  and  business  man  he 
has  no  difficulty.  He  finds  most  of  them  insured, 
some  in  Mutuals  and  some  in  joint  stock  companies. 
He  manages  to  learn  when  their  policies  expire,  and 
in  due  time  is  on  hand  with  proposals  for  renewal. 
He  goes  after  the  best  risks  first,  secures  the  men 
whose  judgment  is  respected  and  whose  example  is 
followed,  as  soon  as  he  can,  but  turns  down  all  doubt- 
ful and  extra  hazardous  risks.  In  short,  he  works 
to  build  up  a permanent  business  which  shall  afford 
him  an  income  for  years  to  come. 

8 


114 


A HAND  BOOK 


Generally  he  has  no  trouble.  He  gets  along 
easily.  But  now  and  then  he  meets  with  a tough  case, 
something  entirely  out  of  the  ordinary. 

THE  MAN  WHO  DOES  NOT  BELIEVE  IN  [INSURANCE. 

First  comes  Mr.  A.,  an  excellent  man,  a model 
citizen  living  in  a fine  house  a few  miles  out  of  town. 
He  does  not  believe  in  Insurance.  He  is  industrious, 
always  busy,  and  does  not  like  to  be  annoyed  by 
agents  and  candidates  when  he  has  anything  to  do. 
So  the  agent  waits  for  his  opportunity.  He  makes  it 
convenient  to  ride  past  Mr.  A.’s  home  occasionally 
and  engages  in  conversation  with  him  when  he  meets 
him  in  town.  He  discovers  that  he  is  proud  of  his 
home  and  devoted  to  his  family.  Not  a word  is  said 
about  Insurance  and  when  he  passes  Mr.  A.  ’s  home, 
a friendly  nod,  or  a cheery  “Good  Morning”  is  all 
that  is  permissible. 

But  one  day,  after  harvest  is  over,  he  sees  Mr. 
A.  leaning  on  the  fence.  Now  is  his  chance.  He 
drives  up  and  accosts  Mr.  A.  After  the  usual  saluta- 
tions he  says : 1 ‘ Mr.  A.  you  have  a lovely  home  here, 
it  must  have  cost  you  a lot  of  hard  work  to  get  things 
in  such  good  shape.”  “Yes,”  replies  Mr.  A.,  “I  did 
have  to  work  hard.”  The  conversation  runs  on  in 
that  line  for  awhile,  the  agent  talking  of  the  beauty 
of  the  home,  its  convenience,  and  how  the  family 
must  enjoy  it  after  all  their  hard  work.  The  agent 
soon  sees  that  Mr.  A.  made  that  home  for  his  family 
and  directs  the  conversation  accordingly.  To  talk 
to  Mr.  A.  about  saving  himself  from  pecuniary  loss 


OF  MUTUAL  INSURANCE 


115. 


would  be  idiotic.  So  he  praises  the  comforts  and 
conveniences  of  the  home  and  before  long  the  two 
are  on  good  terms  and  ready  to  talk  to  each  other. 

Finally  the  agent  says, 4 4 Mr.  A.,  this  is  a beauti- 
ful home,  you  must  live  a happy  life  here.  It  would 
be  a pity  to  see  the  result  of  so  much  toil  and  labor 
burn  up,  and  yourself  and  family  deprived  of  all 
these  comforts  and  all  the  work  to  do  over  again.” 
Mr.  A.  replies,  ‘ ‘ There  is  no  danger ; my  family  and 
myself  are  careful  people,  we  never  have  accidents. 
Besides  that,  I don’t  believe  in  Insurance.”  The 
agent  replies,  “Yes,  Mr.  A.,  you  must  have  been  very 
careful  people  to  have  gotten  things  in  such  nice 
order,  but  somehow,  our  experience  as  Insurance 
men  teaches  us  that  fires  do  sometimes  occur  in  just 
such  cases.  In  fact,  it  is  an  old  saying  that  it  is  the 
unexpected  which  happens.  Looking  at  it  from  your 
standpoint,  I should  say  you  would  never  have  a 
loss.  Looking  at  it  as  I see  it  now,  I should  say  that 
a loss  is  exceedingly  improbable,  but  the  experience 
of  the  companies  makes  a different  showing.  ’ ’ 

Then  the  agent  draws  from  his  pocket  a list  of 
losses  paid  by  the  company  and  shows  it  to  Mr.  A. 
Some  of  the  names  may  be  known  to  Mr.  A.  If  so, 
the  agent  can  take  advantage  of  it.  The  agent  then 
says,  “Probably  few  of  these  were  quite  as  careful 
as  you,  but  all  felt  confident  that  they  would  not  have 
a loss.  In  fact  some  of  them  seemed  to  feel  that 
insuring  was  throwing  money  away.  But  they  had 
fires,  nevertheless.  ’ ’ 


116 


A HAND  BOOK 


Then  the  agent  takes  another  list  from  his 
pocket.  He  has  taken  trouble  to  go  to  the  local  news- 
paper offices  and  to  look  over  the  files  for  two  or 
three  years  past  and  get  a list  of  the  fires  occuring 
in  the  county  during  that  time.  He  has  ascertained 
the  value  of  the  property  destroyed  and  the  amount 
of  Insurance  thereon.  This  list  he  reads  over  to  Mr. 
A.,  emphasizing  the  cases  in  which  there  was  no 
Insurance.  When  he  finishes,  he  says,  “Now,  Mr.  A., 
would  not  you  sleep  a little  sounder  in  that  lovely 
home  of  yours  if  you  were  assured,  that,  if  in  some 
mysterious  manner,  and  by  no  fault  of  yourself  or 
family,  it  should  burn,  they  would  be  saved  from  the 
hard  labor  necessary  to  make  another  home  as 
good?” 

Then  he  produces  one  of  the  inquiry  blanks  used 
by  the  great  commercial  agencies  when  they  wish  to 
ascertain  a man’s  standing,  and  shows  him  the 
question  “How  much  Insurance  carried?”  Then  he 
says:  “You  see,  Mr.  A.,  what  the  business  public 
think  of  Insurance.  They  do  not  regard  it  as  tempt- 
ing Providence,  or  as  gambling,  but  as  an  act  of 
ordinary  prudence.  They  do  not  doubt  the  careful- 
ness and  good  intentions  of  men  in  general  but  they 
know  that  fires  do  come,  and  not  unfrequently  origin- 
ate in  causes  thought  to  be  thoroughly  guarded 
against.  ’ ’ 

The  agent  goes  on  pressing  hard  on  the  facts 
shown  by  the  statistics  he  has,  that  fires  do  occur, 
that  carrying  one’s  own  risk  has  been  disastrous  in 
many  cases,  that  the  public  look  upon  Insurance  as 


OF  MUTUAL  INSURANCE 


117 


an  act  of  ordinary  business  prudence,  that  Mr.  A.  ’s 
family  would  suffer  if  a loss  occured,  and  that  a 
reasonable  Insurance  would  shield  them  from  harm, 
etc.  Possibly  he  will  not  get  Mr.  A.  ’s  application  at 
the  first  visit.  He  may  deem  it  best  to  leave  some 
circulars  for  Mr.  A.  to  look  over  before  coming  to  a 
final  decision. 

But  the  agent  has  done  several  things.  He  has 
supplied  himself  with  all  the  facts  and  figures,  next 
he  has  cultivated  the  acquaintance  of  Mr.  A.,  then 
he  has  gotten  on  good  terms  with  him  and  lastly  he 
has  tried  to  show  Mr.  A.  that  it  would  be  to  the  inter- 
est of  his  family  to  insure. 

The  agent  is  also  cautious  to  avoid  contradicting 
Mr.  A.  He  does  not  desire  any  head  end  collisions. 
That  would  spoil  everything.  He  does  all  prudently 
and  carefully,  with  no  haphazard  or  guess  work.  He 
also  appeals  to  the  highest  motive,  Mr.  A.  ’s  love  for 
his  family.  If  he  had  driven  up  with,  “Well,  Mr.  A., 
I came  out  here  to  insure  you.”  If  he  had  said,  “It 
is  not  good  business  to  let  so  much  property  go  un- 
protected” or  used  any  similar  expression,  he  would 
have  closed  the  case  against  himself  at  once.  Or  if 
he  had  failed  to  have  the  necessary  statistics,  his 
success  would  have  been  more  than  doubtful.  But, 
by  doing  the  right  thing  at  the  right  time,  Mr.  A. 
will  probably  be  won  over,  and  if  he  is,  many  of  his 
friends  will  follow,  and  in  the  future,  a list  of  com- 
missions will  loom  up  which  will  more  than  pay  for 
the  time  he  has  expended  on  this  case. 


118 


A HAND  BOOK 


THE  MAN  WHO  DOES  NOT  LIKE  ASSESSMENTS. 

Next  comes  Mr.  B.  who  does  not  like  assess- 
ments. The  old  line  agents  have  discovered  this  and 
loaded  him  down  with  circulars.  The  agent  meets 
him  and  gets  into  conversation.  “I  like  everything 
about  your  company  except  those  assessments. 
Guarantee  me  against  assessments,  and  I will  give 
you  my  business. 9 9 In  the  states  where  the  all  cash 
or  cash  deposit  methods  are  possible,  Mr.  B.  can  be 
accommodated  at  once.  Explanation  is  made  that 
the  advance  premium  is  so  large  that  there  is  no  pos- 
sibility of  using  it  all,  and  that  there  will  be  an  un- 
used balance  returned  to  him  at  the  end  of  the  term. 
But  in  some  states  this  cannot  be  done.  A premium 
note  must  be  taken  or  the  pure  assessment  method 
adopted.  The  agent  explains  these  methods,  shows 
the  records  of  the  company,  and  expatiates  upon  the 
cheapness  and  safety  of  the  Mutual  methods.  “But 
I want  a company  which  never  assesses.’ ’ “Very 
well,  the  old  line  companies  never  assess,  neither  do 
they  give  you  a share  in  the  profits.  ’ 9 

Then  the  agent  takes  a list  of  actual  cost  of 
Insurance  in  that  locality  for  the  past  few  years  in 
both  stock  and  Mutual  companies.  He  shows  it  to 
Mr.  B.  and  explains  the  workings  of  the  Mutual  plan, 
that  it  is  the  best  and  the  cheapest.  He  shows  that 
for  several  years  the  cost  of  assessment  has  been 
below  the  rate  demanded  by  the  joint  stock  compan- 
ies. Mr.  B.  admits  the  cheapness,  but  says,  “I  want 
a company  that  does  not  assess.  I don’t  want  to  put 
a mortgage  on  my  property  if  it  is  only  for  five  dol- 


OF  MUTUAL  INSURANCE 


119 


lars.  ’ 9 In  some  states  the  best  way  to  answer  this  is 
to  produce  a copy  of  the  Insurance  laws  of  the  state, 
and  show  him  that  there  is  no  liability  beyond  the 
face  of  the  note.  In  other  states,  it  might  be  best  to 
ask  him  if  he  had  ever  heard  of  a policy  holder  in 
this  company  who  gave  a note  being  compelled  to 
pay  more  than  the  face  thereof. 

Having  settled  this,  the  agent  says:  “Mr.  B. 
nobody  ever  heard  of  you  refusing  or  neglecting  to 
pay  a debt,  yet  you  give  notes  in  other  transactions, 
why  not  in  this  case?”  Mr.  B.  repeats  that  he  does 
not  like  assessments  and  does  not  want  to  give  a 
note. 

“Well,”  says  the  agent,  “let  us  look  at  this 
mortgage  business  a little  more  closely.  You  always 
keep  everything  paid  up  and  your  assessments  would 
bfc  no  exception.  That  note  would  be  non-negotiable, 
would  be  worthless  in  the  hands  of  any  body  else  but 
the  company.  With  your  policy  expired  and  your 
last  assessment  paid,  the  note  and  the  policy  will  die 
together.  Did  you  ever  see  one  of  these  Mutual 
Insurance  notes  recorded  in  an  abstract  of  title  as  a 
lien  against  any  property  ? ’ ’ Mr.  B.  does  not  remem- 
ber that  he  has. 

“I  will  tell  you  why,”  says  the  agent.  “If  you 
should  sell  the  property  you  know  that  the  Insurance 
would  become  void  so  far  as  you  were  concerned. 
Now  the  note  dies  with  the  Insurance,  except  the 
assessment  you  happen  to  owe.  That  is  all  the  note 
would  cover  and  all  which  could  be  collected.  In 


120 


A HAND  BOOK 


your  case  there  would  be  no  trouble  about  that 
When  it  was  paid  the  balance  of  the  note  would  be 
returned  to  you. ’ ’ 

“But,”  says  Mr.  B.,  “I  have  heard  of  men  who 
have  sold  out  being  followed  up  and  sued.”  “Mr. 
B.,  when  a man  runs  away  owing  you,  don’t  you  fol- 
low him  up  and  collect  if  you  can?  Isn’t  an  assess- 
ment an  honest  debt ? ” “Of  course. ’ ’ 4 'Well,  when 
a man  tries  to  defraud  us,  what  are  we  to  do?  Can 
we  do  justice  to  our  members  if  we  do  not  bring 
delinquents  to  time?  Now  all  these  things  being 
true,  where  is  the  danger  of  giving  a note  which  you 
intend  to  pay,  which  you  are  willing  to  pay,  or  at 
least  so  much  of  it  as  is  required  ? How  can  it  possi- 
bly work  you  harm?” 

Mr.  B.  has  been  holding  something  back  all  the 
time  and  now  he  lets  it  out.  “Lawyer  X.  told  me 
that  if  I joined  a Mutual  on  the  assessment  plan,  I 
would  be  liable  for  all  I am  worth,  and  if  the  com- 
pany failed  to  pay  any  one  who  had  a loss,  he  could 
sue  me,  and  collect  it  and  I could  not  help  myself. 
He  #aid  he  had  supreme  court  decisions  to  show.” 

The  agent  knows  perfectly  well  that  the  lawyer 
lied,  and  is  tempted  to  say  so,  especially  if,  as  is 
often  the  case,  the  lawyer  is  an  old  line  agent.  But 
he  keeps  his  temper.  “Mr.  B.  did  you  see  those 
decisions ? ” “No,  but  he  said  he  had  them. ” “ Hid 
he  tell  you  when  and  where  they  were  rendered?” 
“No.”  “Hid  you  ever  hear  of  them  before?”  “No.” 

“Well,  Mr.  B.  I do  not  claim  to  be  a lawyer,  and 
I do  not  know  much  about  law,  but  I have  heard  of 


OF  MUTUAL  INSURANCE 


121 


these  decisions  before,  but  I have  never  been  able  to 
see  them.  I have  never  found  any  one  else  that  has. 
Mr.  B.  you  know  something  about  business  partner- 
ship, joint  stock  concerns,  etc.?”  “Yes.”  “Well, 
have  you  seen  partnerships  wound  up?”  “Yes.” 
“And  joint  stock  concerns?”  “Yes.”  “Well,  when 
a partnership  is  wound  up,  is  it  not  true  that  all  the 
partnership  property  must  be  exhausted  before  the 
members  of  the  firm  can  be  called  on,  and  then  they 
must  be  assessed  pro  rata  at  first  and  so  on,  each 
paying  his  full  share  as  far  as  possible?”  “Yes.” 
“Is  it  not  true  that  in  case  of  a brankrupt  joint 
stock  company  the  property  of  the  company  goes  to 
pay  the  debts,  and  when  that  is  used  up,  it  is  only  in 
rare  cases  that  there  is  any  further  liability  and  then 
only  to  an  additional  amount  equal  to  the  stock  held? 
Mr.  B.,  if  all  this  is  true,  can  it  be  true  that  in  any 
organization  any  one  man  is  liable  to  any  other  one 
man  for  all  that  he  has?  Don’t  you  see  that  the  set- 
tlements must  be  made  pro  rata,  and  not  as  that  law- 
yer told  you?” 

Mr.  B.  will  probably  say  nothing  to  this.  The 
agent  then  goes  on.  “You  know  many  of  the  mem- 
bers of  this  company.  After  years  of  experience, 
their  own  and  others,  they  have  found  that  their 
losses  and  expenses  have  never  exceeded  a certain 
rate.  For  the  sake  of  absolute  safety,  they  have  put 
the  premium  note  still  higher.  They  have  never 
needed  the  full  amount  of  the  notes.  Now  as  a man 
of  experience,  of  observation,  and  of  judgment,  tell 
me  what  are  the  chances  that  you  would  be  called  on 


122 


A HAND  BOOK 


individually  to  pay  a loss?  What  are  the  chances 
that  such  a suit  as  was  spoken  of  by  Lawyer  X.  ever 
came  off  or  ever  will  come  off  ? ’ ’ 

Many  policies  contain  stipulations  to  the  effect 
that  there  shall  be  no  liability  beyond  the  face  of  the 
note,  and  these  stipulations  are  taken  from  state 
laws.  WTien  this  is  the  case  the  fact  can  be  pointed 
out  to  Mr.  B.,  and  it  can  be  explained  to  him  again 
that  the  note  is  put  high  enough  to  make  it  absolutely 
sure  that  he  will  get  his  pay  in  case  of  loss. 

Many  companies  work  purely  on  the  assessment 
plan.  In  these  there  is  no  question  about  a person’s 
liability  beyond  the  pro  rata  share.  Such  a thing 
was  never  heard  of.  The  agent  should  be  prepared 
with  statistics  showing  the  rate  of  assessment  in  his 
company  as  far  back  as  possible.  These  ought  to 
convince  Mr.  B.  that  the  bugaboo  which  has  fright- 
ened him  is  a lively  imagination  interested  on  the 
anti-Mutual  side.  If  the  agent  has  time,  he  can  cor- 
respond with  headquarters  and  get  all  the  facts. 
These  he  can  show  to  Mr.  B.  His  key  note  in  all  this 
talk  is  to  show  by  general  observation  of  ascertained 
facts  that  Mutuals  do  not  assess  in  the  style  charged 
against  them,  and  that  they  do  pay  their  losses;  in 
short,  that  they  are  successful  in  the  business  world, 
and  entitled  to  credit  for  having  succeeded. 

THE  MAN  WHO  DOES  NOT  WISH  TO  BE  SWINDLED. 

Then  Mr.  C.  comes  to  the  front.  He  does  not 
want  to  be  swindled.  These  Mutuals  are  not  to  be 
trusted.  He  has  suffered  himself.  This  objection 


OF  MUTUAL  INSURANCE 


123 


presents  itself  in  different  shapes  at  different  times. 
Sometimes  Mr.  C.  is  noisy,  and  tries  to  draw  the 
agent  into  a quarrel.  The  agent  keeps  his  temper 
and  in  time  learns  the  whole  story.  He  writes  it  out 
in  full,  giving  names,  dates  etc.  and  then  sends  it 
to  the  company,  and  they  in  turn  investigate  it 
through  the  state  and  national  organization. 

That  he  has  been  a member  of  a genuine  Mutual 
which  failed  to  pay  its  losses  is  hardly  probable. 
The  committee  have  made  diligent  inquiry  for  such 
Mutuals  and  have  so  far  discovered  but  one,  and  it 
is  doubtful  if  that  made  any  trouble.  Cases  have 
come  to  light  in  which  companies  were  organized  by 
professional  sharpers,  who  collected  the  fees  and  as- 
sessments till  the  first  loss  occured  and  then  abscond- 
ed with  the  funds.  In  other  localities,  men  have  ap- 
peared claiming  to  be  agents  for  Mutuals,  having 
policies,  etc.,  in  due  form,  who  canvassed  for  Insur- 
ance and  collected  considerable  sums  of  money. 
After  gathering  in  what  they  could  they  left.  When 
the  first  loss  occured  a letter  to  the  address  given  on 
the  policy,  came  back,  “uncalled  for,”  and  further 
inquiry  revealed  the  fact  that  such  a company  never 
had  been  heard  of  at  the  post  office  or  any  where 
else,  in  short,  that  the  policies,  etc.,  were  forgeries 
from  beginning  to  end.  These  are  the  usual  methods 
in  which  people  are  defrauded,  and  there  would  have 
been  very  few  of  them,  had  state  officials  been  faith- 
ful in  doing  their  duty. 

If  Mr.  C.  has  actually  lost  by  the  failure  of  a 
genuine  Mutual,  and  is  abusive,  the  only  thing  to  do 


124 


A HAND  BOOK 


is  to  avoid  him.  To  argue  with  him  would  only  make 
the  matter  worse,  and  a street  quarrel  would  degrade 
the  agent  in  the  eyes  of  the  community.  The  only 
thing  for  the  agent  to  do  when  he  comes  near  Mr. 
C.  is  to  avoid  him,  and  if  he  opens  up  his  batteries  of 
abuse,  make  no  reply.  This  will  soon  break  the  force 
of  his  attacks.  When  Mr.  C.  is  quoted  by  some  one 
whose  business  the  agent  is  soliciting,  the  statistics 
can  he  produced  to  show  that  his  was  a very  unusual 
case,  that  the  Mutuals  have  the  best  record,  even  if 
Mr.  C.  did  have  bad  luck,  etc.  If  the  agent  solicits 
people  at  their  homes,  he  will  he  in  no  danger  of  a 
personal  conflict  with  Mr.  C.  and  will  have  a better 
chance  to  present  the  arguments. 

If  Mr.  C.  does  not  make  any  attack,  but  just 
refuses  to  patronize  a Mutual,  the  best  way  is  to  treat 
him  kindly,  never  attack  him,  never  deny  what  he 
says,  not  attempt  to  condone  the  wrong,  and  it  may 
be  that  in  time  he  will  soften  down  and  become 
friendly. 

If,  however,  as  is  more  probably  the  case,  Mr. 
C.  has  been  swindled  by  a bogus  company,  then  the 
course  to  he  pursued  is  entirely  different.  At  first, 
as  before  stated,  the  agent  is  to  keep  quiet,  but  when 
he  has  ascertained  all  the  facts  and  reported  them  to 
headquarters  and  has  received  replies,  he  is  ready 
for  action.  In  the  case  supposed  at  first,  it  would 
be  better  for  him  to  avoid  public  meetings,  now  an 
encounter  in  a crowd  is  just  what  he  wants.  He  gives 
Mr.  C.  an  opportunity  to  attack  him,  and  stands 
quietly  until  he  has  exhausted  himself.  Then  it  is 


OF  MUTUAL  INSURANCE 


125 


his  turn.  ‘ 4 Mr.  C.  did  you  say  you  were  swindled  by 
a Mutual  (giving  its  name  and  post  office)  ?”  “Yes.” 
“Well,  Mr.  C.  here  are  some  letters  about  that  case 
which  may  be  of  interest. ? ’ Then  he  reads  a letter 
from  the  state  superintendent  of  insurance,  saying 
that  he  never  heard  of  such  a company.  He  has  an- 
other from  the  secretary  of  the  state  organization, 
and  he  knows  nothing  about  it.  The  county  treas- 
urer writes  that  it  is  not  on  the  tax  roll  and  never 
has  been.  The  post  master  says  nobody  knows  any- 
thing about  it. 

Then  he  goes  on,  “Mr.  C.,  who  was  the  agent 
who  took  your  application?  Did  he  have  a license 
like  this?  (showing  his  own).  Was  he  an  acquaint- 
ance or  a stranger?”  The  agent  has  now  fairly 
turned  the  tables  on  him.  Mr.  C.  will  probably  try 
to  say  that  the  agent  is  accusing  him  of  falsehood. 
“Oh  no,”  the  agent  will  reply,  “You  have  paid  your 
money  and  gotten  your  policy,  but  these  letters 
which  I have  read  show  that  your  policy  is  a forgery. 
The  agent  was  no  agent  but  just  a common  scamp. 
You  were  swindled,  that  is  all  there  is  to  it.  Do  you 
know  why  people  counterfeit  bank  notes  ? I will  tell 
you.  It  is  because  the  bank  note  is  worth  its  face 
value,  and  that  is  why  this  fellow  counterfeited  a 
Mutual  Policy,  because  Mutual  policies  are  worth 
their  face.  Here  is  a list  of  losses  we  have  paid 
which  goes  to  prove  it.”  And  then  he  distributes 
his  circulars  through  the  crowd.  Mr.  C.  will  prob- 
ably continue  to  sputter  but  his  power  for  harm  is 
gone. 


126 


A HAND  BOOK 


This  fraud  is  sometimes  perpetrated  by  a single 
individual  and  sometimes  by  two  or  three  working 
together.  In  either  case  the  course  of  the  agent  is 
the  same,  to  investigate  thoroughly,  arm  himself 
with  proper  proofs  and  then  expose  the  fraud  pub- 
licly. If  necessary,  publish  the  correspondence  in 
the  local  newspapers.  While  such  encounters  are 
unpleasant,  the  agent  cannot  afford  to  have  his  busi- 
ness destroyed  by  continued  misrepresentation.  If 
the  agent  will  take  the  pains,  he  can  prepare  himself 
so  that  he  can  avoid  trouble  from  all  these  cases.  He 
may  not  be  able  to  get  their  business,  but  he  can  sil- 
ence their  opposition. 

THE  MAN  WHO  DOES  NOT  LIKE  MUTUALS. 

This  man  does  not  believe  in  co-operation. 
Mutuality  has  no  charms  for  him.  He  has  but  two 
objects  of  worship,  first  the  potent  and  almighty 
dollar,  and  second,  the  man  who  owns  the  most  of 
said  dollars. 

The  agent  approaches  him  and  mentions  Mutual 
Insurance.  4 ‘Oh  no,  Mr.  Agent,  you  have  mistaken 
your  man.  You  may  succeed  in  duping  country 
farmers  and  such  people,  but  I am  a business  man 
and  we  business  men  have  studied  these  things  and 
we  know  the  facts.  We  know  that  your  ideas  are 
visionary.  Why,  you  are  nothing  but  a lot  of 
cranks.”  “You  think  so?”  “Yes,  I know  it.” 

‘ * Mr.  D.,  you  are  familiar  with  the  early  history 
of  the  country,  you  know  something  about  its  public 
men.  Wliat  do  you  think  of  Benjamin  Franklin? 


OF  MUTUAL  INSURANCE 


127 


Was  lie  not  a good  business  man?  In  fact,  was  he 
not  the  practical  man  of  that  age?”  Mr.  D.  admits 
that  at  once.  “Well,  Mr.  D.  did  you  ever  hear  of  his 
Mutual  Insurance  Society?”  “Why,  no,  what  did 
he  have  to  do  with  Mutual  Insurance  ? ” “ He  started 
a Mutual  Insurance  Society?”  “Well,  what  if  he 
did?”  “Why,  one  of  the  best  business  men  of  that 
age  was  a believer  in  Mutuals,  he  started  the  first 
Mutual  in  the  United  States.  It  was  called  the  Phila- 
delphia Contributionship,  and  it  is  running  on  the 
same  plan  yet.  Now  you  would  not  call  a business 
which  has  been  running  successfully  for  a century 
and  a half  visionary,  would  you  ? ’ ’ Mr.  D.  will  prob- 
ably have  nothing  to  say  to  this  and  the  agent  should 
be  careful  not  to  crowd  him. 

The  agent  goes  on.  “You  heard  of  the  Balti- 
more fire ? ” “Yes,  and  all  the  Mutuals  are  gone  and 
gone  forever.”  “Oh  no,  Mr.  D.  we  saw  that  in  a 
joint  stock  paper,  and  we  wrote  to  the  Commissioner 
of  Insurance.  Two  of  the  seven  Mutuals  went  into 
hands  of  a receiver,  and  four  out  of  the  eight  joint 
stock  companies  of  Maryland  failed.  But  the  com- 
pany that  paid  with  the  least  trouble  was  the  Balti- 
more Equitable,  a Mutual  started  more  than  a hun- 
dred years  ago.  Now  that  does  not  look  visionary, 
does  it?” 

The  agent  waits  a moment,  then  goes  on,  “The 
fact  is,  Mr.  D.  most  men  are  busy.  I know  that  you 
are  very  busy.  You  have  one  rule  which  you  can 
apply  in  this  case,  and  that  is,  that  which  succeeds 
must  be  practical.  Now  the  Mutuals  have  the  figures 


128 


A HAND  BOOK 


to  show  that  they  do  succeed,  and  that  they  do  save 
money.  Have  you  ever  heard  of  the  failure  of  a 
genuine  farm  Mutual,  I mean  a failure  to  pay  in  full. 
Sometimes,  too  many  Mutuals  are  started  in  the 
same  territory,  and  some  of  them  retire  or  consoli- 
date. I do  not  mean  this,  but  a failure  to  pay  losses, 
a bankruptcy  f ” Mr.  D.  has  never  troubled  his  head 
about  such  matters.  “Well,  Mr.  D.,  I am  ready  to 
show  you  official  figures  to  prove  that  such  failures 
are  almost  unheard  of,  that  the  business  record  of 
these  societies  is  better  than  that  of  any  other  class 
of  commercial  institutions  in  the  country.  Now  if 
I prove  that,  and  then  show  you  that  they  offer 
cheaper  Insurance  than  any  other,  will  you  consider 
it  visionary  to  give  me  your  business?  Now  you 
know  a good  thing  when  you  see  it.  What  do  you  say 
to  this  ? ’ ’ 

Talk  along  this  line  may  win.  Genuine  business 
men  like  pluck,  they  like  to  see  a man  push  his  busi- 
ness and  will  not  get  offended  if  he  does.  The  tactful 
agent  will  probably  make  a friend,  if  he  does  not  get 
the  business. 

The  business  man  who  has  become  suddenly 
rich  by  some  stroke  of  fortune,  or  by  swindling  his 
neighbors,  is  generally  too  self  conceited  to  be  easily 
approached,  and  too  ill  mannered  to  talk  with. 
While  it  is  the  duty  of  the  agent  to  go  after  all  busi- 
ness, he  may  be  permitted  to  make  an  exception  in 
that  case  and  let  the  man  alone. 

THE  MAN  WHO  DOES  NOT  LIKE  ANYTHING  SMALL. 

Now  and  then  the  agent  meets  some  one  who 
does  not  believe  in  Mutuals  because  “They  must 


M.  G.  L.  ROBERTS,  CHATTANOOGA,  TENNESSEE. 

Mr.  Roberts  is  one  of  the  successful  men  of  the  South.  He 
is  the  pioneer  Mutual  Insurance  man  in  his  state,  president  of 
the  United  States  Fire  Insurance  Company  of  Chattanooga,  a 
most  prosperous  organization  and  the  only  one  financially  able 
to  go  on  a legal  reserve  basis  and  still  have  a net  surplus  over 
all  liabilities,  re-insurance  reserve  included.  He  is  also  at  the 
head  of  other  important  business  enterprises,  member  of  the 
Georgia  Society  of  Chattanooga,  a charter  member  of  the  Chat- 
tanooga Historical  Society— in  fact  is  active  in  all  lines  of  public 
usefulness. 


F.  D.  BABCOCK,  IDA  GROVE,  IOWA. 

Mr.  Babcock  is  secretary  of  the  Grain  Shippers  Mutual  Fire 
Association  of  Ida  Grove.  This  does  a state  business  and  is  in- 
creasing its  risks  very  rapidly,  although  it  exercises  great  care 
to  avoid  all  which  are  doubtful  or  undesirable.  He  was  the  or- 
ganizer of  this  Company  and  has  been  a leading  man  in  Mutual 
Insurance  in  Iowa  for  many  years. 


OF  MUTUAL  INSURANCE 


129 


fail,  sir.  Nothing  can  succeed  in  circumscribed  terri- 
tory. No  sir.  A single  state  is  too  small  a field.  An 
Insurance  company  to  be  safe  must  operate  widely, 
must  draw  its  patronage  from  the  whole  country. 
Your  Mutuals  cannot  live.  They  are  too  small,  sir, 
too  small,  sir!” 

The  experienced  agent  has  run  against  this 
snag  more  than  once.  It  is  one  of  the  standing  argu- 
ments of  the  larger  joint  stock  companies,  not  only 
against  the  Mutuals,  but  against  the  smaller  joint 
companies.  It  is  really  the  business  creed  of  the 
trust.  They  have  been  active  in  propagating  it  and 
it  is  astonishing  how  many  people  have  accepted  it 
without  thought.  This  man  is  sometimes  too  large 
to  talk  to  anything  less  than  an  international  com- 
pany. But  perhaps  he  will  listen.  If  so,  the  agent 
says:  “Well,  Mr.  E.  you  own  a nice  property  out 
there  in  the  country  (but  Mr.  E.  is  never  a farmer). 
I should  like  to  insure  it.  Our  company  has  total 
assets  so  much,  total  risks  so  much,  that  is  so  much  of 
assets  to  a hundred  dollars  of  risk,  a greater  percent 
than  most  of  your  so-called  strong  companies  have. 
Moreover,  those  large  companies  have  greater 
amounts  bunched  in  the  dangerous  districts  of  Chi- 
cago, St.  Louis,  San  Francisco  and  other  cities.  If 
a hundred  million  dollar  fire  should  occur  and  the 
company  should  be  obliged  to  sell  large  amounts  of 
stocks  and  bonds  on  a low  market,  you  could  not  tell 
what  the  result  would  be.  But  look  at  our  company. 
Our  largest  risk  is  $3,000.  We  have  no  two  risks 
exposed  to  each  other,  hence  the  worst  fire  can  only 

9 


ISO 


A HAND  BOOK 


cost  us  $3,000,  and  that  would  make  us  no  trouble  at 
all.  If  we  are  a small  company,  we  have  scattered 
our  risks  till  they  are  smaller  in  proportion  to  our 
ability  to  pay  them  than  those  of  the  great  compan- 
ies. Hence,  we  claim  we  are  safer. 1 9 Lists  of  losses, 
etc.,  may  he  produced  and  all  available  statistics  may 
be  used. 

Possibly  he  will  consider  an  appeal  to  his  finan- 
cial interest.  Probably  he  will  prefer  to  boast  that 
he  is  insured  in  the  largest  company  in  the  country, 
even  though  he  has  to  pay  heavily  for  the  privilege. 

All  of  these  characters,  and  possibly  others  will 
be  encountered  by  the  active  and  energetic  agent. 
And  for  all  of  them  he  must  be  ready.  He  never 
knows  when  he  starts  out  in  the  morning,  what  he 
will  meet  before  he  returns.  He  should  pick  his  man 
and  go  after  him.  Firing  at  a flock  for  general  re- 
sults is  a poor  way  of  hunting.  Each  time  he  wins  a 
patron  will  make  it  easier  to  win  the  next. 

OLD  LINE  AGENTS  AND  HOW  TO  TREAT  THEM. 

Many  old  line  agents  are  honorable  and  court- 
eous. There  are  also  some  who  are  destitute  of  prin- 
ciple and  decency.  They  will  try  to  provoke  quar- 
rels. The  Mutual  agent  should  avoid  these  as  much 
as  possible.  If  he  solicits  his  customers  in  their 
homes  or  places  of  business,  he  will  generally  be 
safe  from  interruption.  Above  all,  the  Mutual  agent 
should  avoid  doing  business  on  the  town  street  corner 
where  he  will  be  surrounded  by  a gaping  crowd. 

But  he  should  be  on  the  guard  against  wilful 
misrepresentation.  The  old  line  agent  will  not  be 


OF  MUTUAL  INSURANCE 


131 

slow  in  approaching  the  Mutual  man,  and  from  this 
the  agent  can  learn  what  is  going  on.  He  should  se- 
cure copies  of  all  circulars  distributed  and  send  them 
to  headquarters.  He  will  get  replies  and  these 
should  be  distributed.  If  the  old  line  agent  says  he 
has  adverse  court  decisions  and  says  so  to  his  face, 
let  the  Mutual  agent  take  out  pencil  and  paper  and 
say,  “Now  just  give  me  the  volume  and  page  of  that 
decision. ’ ’ If  he  says  he  has  it  at  his  office,  then  the 
thing  to  do  is  to  offer  to  go  with  him  and  look  at  it. 
If  he  says  he  saw  it  somewhere  else,  then  let  him  tell 
where.  The  Mutual  agent  should  never  stop  till  he 
has  pinned  the  other  man  down.  The  result  will  be 
that  he  has  either  no  decision  touching  the  case,  or 
else  has  misquoted  something.  If  the  agent  can 
learn  in  advance  what  the  joint  stock  man  asserts 
and  correspond  with  headquarters,  he  can  be  fully 
prepared  to  meet  anything  and  everything. 

THE  MAN  WHO  IS  FRIGHTENED. 

This  man  is  one  who  has  already  insured  but 
who  hears  so  much  about  Mutuals  that  he  is  begin- 
ning to  regret  it.  He  is  startled  and  worried  by  the 
talk  until  life  becomes  almost  a burden.  He  can  be 
made  very  useful,  and  well  satisfied  at  the  same  time. 
The  opportunity  will  come  when  a large  fire  occurs, 
in  which  the  company  is  interested.  The  news  will 
get  to  his  ears.  “Told  you  so,”  says  the  old  liner, 
“Your  company  is  busted,  your  Insurance  is  gone 
and  you  will  have  to  pay  a big  assessment.  You 
ought  to  have  taken  my  advice,”  etc.,  etc. 


132 


A HAND  BOOK 


He  meets  the  Mutual  agent.  ‘ ‘ Say  did  you  hear 
of  that  big  loss  over  there  ? Can  the  company  pay  it  t 
How  much  will  they  assess  me  V 9 The  agent  replies, 
“Yes,  I heard  of  that  loss,  the  company  can  manage 
it.  Your  assessment  will  not  he  heavy.”  (In  some 
companies  the  assessment  is  made  in  advance,  here 
the  agent  would  use  different  language).  The  policy 
holder  shakes  his  head.  “Well,”  says  the  agent,  “Did 
you  not  get  one  of  our  last  reports'?”  He  produces 
one  and  reads  the  list  of  losses.  “Now  you  see,  here 
is  a long  list  of  just  such  losses,  they  were  all  paid, 
and  there  was  no  trouble  about  it.  ” So  he  leaves  him, 
telling  him  not  to  be  troubled. 

A few  days  pass  by  and  the  assessment  comes. 
It  is  but  a moderate  sum.  He  hunts  up  the  agent. 
‘ ‘ What ’s  this ? ” “ Your  assessment. ” “To  pay  for 
that  loss?”  “0,  no,  that  pays  for  several  losses,  not 
very  heavy  it  is?”  “No,  that’s  all  right,  but  will  it 
holdout?”  “You  wait  and  see.  The  agent  gets  the 
loss  receipt  and  shows  it  to  his  timid  friend.  “The 
company  is  all  right,  I ’m  satisfied, 9 9 and  off  he  goes 
to  tell  the  story  to  every  man  he  meets.  He  will  do 
any  amount  of  good  advertising  for  the  agent  and 
the  company. 

The  shrewd  agent  can  very  frequently  use  such 
men  to  turn  the  tables  on  his  opponent  and  gain 
friends  and  business  for  the  company  at  the  same 
time. 

THE  MAN  WHO  WISHES  TO  ARGUE  THE  CASE. 

In  every  community  there  is  an  individual  who 
always  wants  to  argue.  He  is  contrary  because 


OF  MUTUAL  INSURANCE 


133 


Mother  Nature  made  him  so.  He  is  “agin  it”  no 
matter  what  the  “it”  happens  to  be  or  how  he  stood 
the  last  time  he  argued  that  same  question.  His 
stock  in  trade  consists  of  tricks  and  catches  and  his 
great  delight  is  to  badger  some  honest  man  for  the 
amusement  of  a gaping  crowd.  He  is  proficient  in 
his  line,  and  is  expert  in  getting  the  laugh  on  his  op- 
ponent. He  is  a good  illustration  of  the  old  saying 
that  any  fool  can  ask  questions  that  a wise  man  can- 
not answer. 

This  man  is  dangerous  only  to  those  who  argue 
with  him.  The  agent  must  avoid  that  error.  He 
must  he  treated  civilly,  answered  courteously,  but 
not  allowed  to  discuss  matters.  In  conversing  with; 
such  a man  the  art  of  saying  nothing  and  saying  it 
well  is  a valuable  accomplishment.  The  best  way  of 
meeting  him  is  to  turn  the  tables  on  him  by  asking 
questions  about  some  other  matter.  Let  them  come 
thick  and  fast  so  that  he  will  have  no  time  to  advance 
his  own  ideas.  Not  a moment  should  be  allowed  him 
in  which  to  argue.  As  a rule  the  men  who  spend 
their  time  disputing  have  no  business  worth  going 
after  and  the  best  course  is  to  get  rid  of  them  as 
soon  as  possible.  A volley  of  questions  is  pretty 
sure  to  put  the  enemy  to  flight. 

THE  MAN  WHO  DOES  NOT  UNDERSTAND  INDEMNITY. 

Occasionally  the  agent  meets  a man  who  says, 
“I  have  been  insured  for  ten  years.  I have  never 
had  a loss.  You  have  never  paid  me  a cent.  My 


184 


A HAND  BOOK 


Insurance  has  not  cost  you  a cent.  I don ’t  believe  in 
that  kind  of  business.”  Or  perhaps  he  will  refuse 
to  pay  his  assessments  on  the  ground  that  as  he  has 
cost  the  company  nothing,  he  owes  them  nothing. 

Such  men  are  often  perfectly  sincere  and  should 
be  treated  fairly  and  candidly.  The  agent  should 
endeavor  to  convince  them  that  after  all  they  did 
have  something  of  value.  It  is  best  at  first  to  avoid 
the  use  of  technical  terms,  such  as  ‘ ‘ indemnity,  ’ ’ etc. 
Begin  with  simple  language.  4 ‘ Well,  Mr.  G.  it  is 
true  that  you  have  received  no  money  from  the  com- 
pany, do  you  regard  what  you  paid  the  company  as 
a dead  loss?”  “Of  course,  it  is,  any  fool  ought  to 
see  that.,,  The  agent  should  keep  his  temper  and 
give  the  man  a minute  or  two  to  think.  Then  he  may 
say,  “Mr.  G.  several  of  your  neighbors  are  insured 
in  this  company.  One  or  two  had  losses,  did  not  the 
company  pay  them  promptly?”  “Oh,  yes,  of  course.” 
“Then  the  company  lives  up  to  its  obligations.” 
“Yes,  it  pays  its  losses.”  “And  if  others  had  burned 
out  it  would  have  paid  them  also.  Then  these  others 
were  safe  from  loss  if  they  had  burned  out.”  “Yes, 
I suppose  so.”  “Did  not  your  neighbor  X buy  a 
farm  not  long  ago?”  After  the  agent  has  talked  a 
while  about  the  new  farm  he  asks,  “Did  not  Mr.  X. 
have  to  give  a mortgage  for  part  of  the  purchase 
money ? ” “I  believe  so. ” “ And  give  a Fire  Insur- 
ance policy  in  addition  as  part  security?”  “Yes.” 
“Then  this  Fire  Insurance  policy  enabled  Mr.  X.  to 
buy  that  farm?”  “Yes.”  “Well,  if  it  helped  him 
out  that  much  was  it  not  worth  something  to  him, 


OF  MUTUAL  INSURANCE 


135 


even  if  he  did  not  have  a loss?” 

“Well  my  case  is  different,  I did  not  buy  any 
farm. ’ ’ The  agent  at  this  point  should  refer  to  some 
improvement  made  or  some  expenditure  of  Mr.  G., 
and  then  say,  4 ‘ Mr.  G.  you  spent  that  money  wisely. 
But  suppose  that  while  your  Insurance  policy  was 
in  force  your  house  had  burned,  the  company  would 
have  paid  your  loss  would  they  not?”  “Oh,  Yes.” 
“And  the  fact  of  the  loss  would  not  have  interfered 
with  the  expenditure  you  made.”  “I  suppose  that  is 
so.  ” “ And  if  your  house  had  burned  without  Insur- 
ance you  would  have  had  to  take  that  money  to  re- 
build another  instead  of  expending  it  as  you  did?” 
“Yes.”  “Well,  then  the  Insurance  made  you  safe?” 
“Yes.”  “Well  now  Mr.  G.,  isn’t  that  safety  worth 
something  even  if  you  did  not  have  a loss?  If,  as 
you  said  a while  ago,  your  neighbors  who  are  insured 
are  safe,  if  Insurance  made  Mr.  X.’s  credit  safe,  if 
it  made  you  safe,  wasn’t  it  worth  something  to  you 
after  all?  You  pay  for  enjoyment,  for  comfort,  was 
it  not  actually  worth  something  to  you  to  know  that 
you  were  safe?”  “Well  maybe  it  was,  but  how  do  I 
know  how  much  it  was  worth?  I can’t  see  it  yet.” 

“Well  Mr.  G.,  things  are  generally  worth  what 
they  cost.  The  members  of  this  Mutual  have  com- 
bined to  make  each  other  safe  as  far  as  they  wish 
to  be.  Every  kind  of  property  has  been  kept  account 
of,  and  what  it  costs  to  insure  each  kind  is  figured 
out  very  closely.  The  company  knows  what  it  costs 
and  each  man  pays  that  cost  and  no  more.  In  other 
words,  the  losses  of  property  by  fire  and  storm  are 


136 


A HAND  BOOK 


averaged  on  the  whole  property  insured  and  that  is 
the  cost.  The  assessments  yon  paid  are  just  what  it 
cost  to  make  you  safe.  Now,  was  it  not  worth  that 
much  to  you?  Would  you  he  satisfied  to  let  your 
property  go  uninsured  and  take  the  risk  yourself !” 

Perhaps  Mr.  G.  will  take  the  ground  that  those 
who  had  losses  should  pay  their  assessments  but 
that  the  others  do  not  owe  anything.  If  he  still  ad- 
heres to  this  opinion  the  agent  may  say,  4 ‘ Well,  Mr. 
G.  the  company  cannot  pay  out  any  more  than  it 
takes  in,  can  it ? ’ ’ “Of  course  not. 9 9 “ Then  if  those 
who  do  not  lose,  do  not  owe  anything  and  only  the 
losers  do  owe,  these  losers  are  the  only  ones  who 
should  pay  an  assessment.  Don ’t  you  see  this  would 
simply  be  making  the  losers  pay  their  own  assess- 
ments, in  effect,  paying  their  own  loss,  and  that  they 
would  have  no  safety  whatever  ? ’ ’ 

Argument  along  these  lines  will  generally  con- 
vince reasonable  men.  But  the  agent  must  remember 
that  there  are  many  men  who  are  slow  to  compre- 
hend the  idea  that  anything  invisible,  which  cannot 
be  counted  nor  weighed  can  have  a cash  value,  that 
this  safety  or  indemnity  is  worth  something  in 
money,  that  the  purchaser  thereof  has  received  bene- 
fits for  which  he  should  pay.  Patience  and  forbear- 
ance will  work  wonders  in  such  cases. 

THE  FALSIFIER. 

A new  industry  has  been  started  lately  by  some 
ingenious  joint  stock  people.  Their  emissaries 
travel  over  the  country  ostensibly  engaged  in  some 


OF  MUTUAL  INSURANCE 


137 


canvassing  business,  but  at  every  farm  house  where 
they  stop  they  make  it  a point  to  deliver  a long  lect- 
ure on  the  short  comings  of  the  Mutuals.  It  is  un- 
necessary to  say  that  their  statements  are  pure  fabri- 
cations. If  the  agent  warns  his  customers  in  advance 
such  people  will  do  no  harm.  But  on  no  account 
should  the  agent  enter  into  dispute  with  them.  Let 
them  work  out  their  own  affairs  and  the  more  the 
agent  ignores  them  the  better. 

It  is  sometimes  provoking  to  meet  the  villainous 
calumnies  of  the  enemies  of  the  Mutuals.  But  vitu- 
peration in  reply  will  accomplish  no  good.  Official 
publications  are  legitimate  and  should  be  used  in 
favor  of  the  Mutuals,  but  the  4 ‘you’re  another”  style 
of  argument  should  never  be  indulged  in.  Let  the 
opponents  of  the  Mutuals  have  the  monopoly  of  that 
kind  of  talk.  Above  all  things  the  agent  must  keep 
his  temper.  No  matter  how  indignant  he  may  be  at 
the  personal  abuse  or  the  malignant  misrepresenta- 
tion of  his  assailants,  he  must  keep  cool.  To  get 
angry  is  to  lose  his  advantage. 

INSURANCE  AT  COST. 

The  Mutual  Insurance  agent  should  keep  before 
the  people  the  idea  that  the  end  and  object  of  his 
company  is  to  furnish  Insurance  at  cost.  He  should 
explain  that  cost  is  ascertained  as  time  passes  and 
cannot  be  accurately  ascertained  till  the  close  of  the 
term.  He  should  be  provided  with  facts  and  figures 
to  show  exactly  what  the  cost  has  been  in  different 
cases.  If  he  can  get  a few  cancelled  notes  which 
have  expired  and  show  that  the  credits  thereon  leave 


138 


A HAND  BOOK 


a good  balance  to  be  returned  to  the  policy  holder 
they  will  be  evidence  which  cannot  be  contradicted. 
They  will  enable  him  to  show,  in  each  case,  exactly 
the  amount  paid  by  the  policy  holder. 

These  facts  and  figures  will  furnish  the  answer 
to  a question  which  is  frequently  asked,  “Why  does 
your  company  charge  such  high  rates V9  The  fact 
should  be  brought  out  in  clear  relief  that  it  is  not  the 
note  which  he  signs  but  the  part  which  he  pays  which 
interests  the  policy  holder.  If  it  costs  a man  $30 
to  insure  a $1,000  risk  for  five  years,  it  does  not  mat- 
ter whether  he  signs  a note  for  $30  or  $300,  the  $30 
is  all  it  costs.  The  balance  is  returned  to  him. 

When  a cash  payment  is  made  it  is  placed  to  the 
credit  of  the  policy  holder,  and  only  that  which  is 
used  is  retained.  The  company  returns  the  rest  as 
a dividend.  The  principle  is  the  same  whether  cash 
or  notes  are  used. 

It  is  becoming  a custom  to  charge  rates  high 
enough  to  cover  all  possible  risks.  In  some  states 
the  companies  still  hold  the  rates  of  fifty  or  a hun- 
dred years  ago.  The  mill  Mutuals  of  the  east  illus- 
trate this.  Their  dividends  are  not  unfrequently 
ninety-five  per  cent  of  the  amount  of  cash  payment. 
If  the  agent  will  keep  the  average  cost  before  the 
policy  holder,  these  questions  will  not  trouble. 

BROKERAGE  AND  REINSURANCE. 

The  agent  must  inform  himself  on  these  sub- 
jects. Illustrations  will  show  the  different  condi- 
tions. If  a risk  of  $10,000  is  offered  to  the  agent, 


OF  MUTUAL  INSURANCE 


139 


the  limit  of  the  company  being  $2,000,  there  are  sev- 
eral courses.  He  can  take  $2,000  and  let  the  owner 
look  after  the  rest.  He  will  see  of  course  that  the 
proper  permission  for  concurrent  insurance  is  in- 
serted in  the  policy  and  that  his  company  is  fully 
informed  concerning  the  whole  transaction. 

He  may  take  the  whole  $10,000  and  turn  it  over 
to  the  company  which  will  re-insure  the  $8,000  ex- 
cess. In  both  cases  the  responsibility  of  the  agent  is 
confined  to  one  transaction  and  one  policy  and  no 
more.  He  is  not  accountable  for  the  concurrent  in- 
surance placed  by  the  policy  holder,  nor  for  the  re- 
insurance by  the  company.  There  is  a third  course. 
He  may  agree  with  the  policy  holder  to  place  the 
whole  $10,000.  He  will  then  insure  $2,000  in  his  own 
company  and  place  the  balance  in  other  companies 
as  best  he  can.  In  placing  the  $2,000  he  is  agent  for 
his  own  company  with  all  the  rights,  duties  and  re- 
sponsibilities that  pertain  to  the  position.  But  in 
placing  the  other  $8,000  he  becomes  a broker  and  his 
position  is  entirely  different.  He  is  then  the  agent 
of  the  policy  holder,  if  he  fairly  represents  the  con- 
ditions of  the  property  to  the  insuring  companies 
his  responsibility  is  at  an  end. 

Though  the  doctrine  that  a man  cannot  be  agent 
for  both  parties  is  well  established,  the  case  cited  be- 
low holds  that  the  application  of  the  rule  must  be  con- 
fined to  matters  of  the  same  import.  In  this  case, 
the  court  holds  that  for  the  purpose  of  procuring  and 
canceling  policies  the  man  was  agent  for  the  insured 
although  agent  for  the  company  at  the  same  time. 


140 


A HAND  BOOK 


The  force  of  this  decision  is  that  he  had  the  right  to 
cancel  policies  and  that  policies  issued  through  him 
to  the  insured  were  binding.  That  is,  he  was  agent 
for  one  party  for  one  purpose  and  another  party  for 
another,  but  not  for  both  parties  for  the  same. 

LAWS  AND  DECISIONS. 

“In  a suit  on  a policy  of  Fire  Insurance  the 
proof  showed  that  a previous  agreement  existed  be- 
tween the  president  of  the  insured  corporation  and 
an  Insurance  agent  that  the  corporation’s  property 
should  be  kept  insured.  No  particular  Insurance 
company  or  companies  were  mentioned,  and  the  cor- 
poration ’s  president  gave  no  concern  to  that  matter. 
He  made  the  Insurance  agent  his  agent  for  the  pur- 
pose of  selecting  the  company  or  companies,  and, 
pursuant  to  the  arrangement,  the  agent,  without 
notice  to  the  president,  cancelled  a policy  in  one 
company  and  substituted  therefor  a policy  in  the 
defendant,  and  mailed  it  to  the  president  of  insured 
before  the  fire  occured.  Held,  that  the  agent,  though 
the  agent  of  the  Insurance  companies,  was  made 
agent  of  the  insured  for  the  purpose  of  procuring 
and  canceling  policies,  and  defendant’s  policy  was 
in  force.”  Phoenix  Ins.  Co.  vs.  State,  to  Use  of 
Saline  River  Shingle  & Lumber  Co.,  88  S.  W.  (Ark.), 
917.  j 

STATE  LAWS. 

There  are  in  many  states  laws  defining  the  sta- 
tus and  duties  of  agents.  For  violation  of  these  laws 
there  is  generally  a penalty.  In  order  to  avoid  both 
the  transgression  and  the  penalty,  the  agent  should 


OF  MUTUAL  INSURANCE 


141 


always  act  fairly,  avoid  dealing  with  unauthorized 
companies  and  never  put  off  business  which  can  be 
closed  up.  While  making  no  attempt  at  an  exhaust- 
ive treatise,  a few  cases  may  be  given  and  a few  laws 
cited  which  will  give  an  idea  of  the  application  of 
these  principles. 

Arkansas  says  that  “Any  person  who  shall  here- 
after solicit  Insurance  or  procure  applications  shall 
be  held  to  be  the  soliciting  agent  of  the  Insurance 
company  or  association  issuing  a policy  on  such  ap- 
plication, or  a renewal  thereof,  etc.” 

Connecticut  includes  surveyors  among  agents. 
The  broker  is  also  mentioned  in  some  codes. 

The  object  of  these  definitions  seems  to  be  to 
include  all  those  who  transact  business  for  foreign 
companies,  and  to  fix  a liability  in  cases  of  fraud  or 
misconduct. 

Maine  has  a rather  stringent  law.  “An  agent 
authorized  by  an  Insurance  company,  whose  name  is 
borne  on  the  policy,  is  an  agent  in  all  matters  of  In- 
surance, any  notice  required  to  be  given  to  said  com- 
pany or  any  of  its  officers  by  the  insured  may  be 
given  to  such  agent,  any  application  for  Insurance, 
or  valuation  or  description  of  the  property,  or  of  the 
interest  of  the  insured  therein,  if  known  by  said 
agent,  is  conclusive  on  the  company,  but  not  upon  the 
insured  although  signed  by  him,  and  all  acts,  pro- 
ceedings and  doings  of  such  agent  with  the  insured 
are  as  binding  on  the  company  as  if  done  and  per- 
formed by  the  person  specifically  empowered  or  de- 
signated therefor  by  the  contract.  ’ ’ 


142 


A HAND  BOOK 


The  pith  of  all  these  laws  is  that  the  man  who 
induces  another  to  insure  in  any  company  is  the 
agent  of  that  company  and  the  company  is  responsi- 
ble for  his  acts.  At  the  same  time  he  must  exercise 
reasonable  diligence  to  assure  himself  that  he  is 
working  for  a legitimate  company. 

An  agent  is  responsible  for  sub-agents,  also  for 
his  clerks  and  book  keepers.  This  is  a well  known 
maxim  of  commercial  law. 

In  some  cases  this  responsibility  is  far  reaching. 
If  an  application  for  Insurance  is  given  to  an  agent 
which  he  cannot  take  and  he  turns  it  over  to  an- 
other who  places  it,  but  collects  the  fee  himself,  he 
is  liable  to  be  held  as  the  agent  of  the  company 
which  issues  the  policy,  although  he  had  no  direct 
communication  with  them.  But  this  is  good  policy. 
Men  must  be  responsible  for  what  they  do.  The 
agent  is  like  the  man  who  shoots,  responsible  for  his 
bullet,  no  matter  where  it  goes  or  what  it  does.  But 
the  assured  is  also  bound  to  use  common  sense,  and 
common  prudence  in  all  such  cases. 

Nearly  all  courts  have  held  that  latent  restric- 
tions upon  the  authority  of  the  agent  of  which  the  in- 
sured has  no  knowledge  are  not  binding  upon  a 
policy  holder. 

Minnesota  has  the  following  law,  “Any  person 
who  solicits  Insurance  and  procures  the  application 
therefor  shall  be  held  to  be  the  agent  of  the  company 
thereafter  issuing  the  policy  upon  such  application, 
or  a renewal  thereof,  anything  in  the  application  or 
policy  to  the  contrary  notwithstanding.  ’ ’ This  law 


OF  MUTUAL  INSURANCE 


143 


puts  a stop  to  the  practice  of  printing  in  applications 
for  Insurance,  loans,  etc.  in  some  obscure  position 
and  in  microscopic  type  “and  constitute  him  my 
agent.’ ’ This  was  generally  overlooked  by  the  ap- 
plicant, but  when  a dispute  arose  the  applicant  was 
sometimes  led  to  believe  that  it  was  binding  on  him. 

If  an  agent  cuts  a rate  without  authority  from 
the  company  he  is  liable  for  the  balance  of  the  prem- 
ium. (See  Continental  Ins.  Co.  of  N.  Y.  vs.  Clark , 
et  al , 100  N.  W.). 

The  acts  of  an  agent  performed  within  the 
scope  of  his  real  or  apparent  authority  are  binding 
upon  his  principal.  The  public  have  a right  to  rely 
upon  an  agent’s  apparent  authority  and  are  not 
bound  to  inquire  as  to  his  special  powers  unless  the 
circumstances  are  such  as  to  put  them  upon  inquiry. 

There  are  several  decisions  along  this  line.  The 
principle  is  general.  The  idea  seems  to  be  that,  as 
among  policy  holders  the  great  mass  are  entirely 
ignorant  of  the  laws  relating  to  agencies,  but  gener- 
ally accept  what  an  agent  does  as  representing  his 
principal,  no  advantage  shall  be  taken  by  means  of 
secret  instructions  or  other  evasions.  The  tendency 
is  toward  making  principals  completely  responsible 
for  their  agents,  and  for  all  their  acts. 

The  representations  of  an  agent  to  the  insured 
must  be  full  and  complete.  If  otherwise,  he  may  be 
held  to  have  waived  what  was  not  mentioned.  And 
so  in  the  other  case,  if  the  agent  performs  certain 
acts  he  may  be  held  to  have  waived  any  objections 
to  the  conditions  precedent  to  such  acts.  If  there 


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are  several  reasons  why  the  company  objects  to  pay- 
ing a loss,  etc.  and  the  agent  states  only  one,  he  may 
be  held  to  have  waived  the  others.  It  is  not  asserted 
that  the  company  will  be  held  liable  in  these  cases, 
but  only  that  it  may  be,  and  it  is  best  for  the  agent 
to  avoid  all  dangers. 


MAXIMS. 

The  same  principle  applies  to  the  acts  of  the 
agent.  Failing  to  do  the  right  thing  at  the  right 
time,  may  act  as  a waiver.  The  agent  should  scrupu- 
lously avoid  parol  or  verbal  contracts.  Everything 
should  be  reduced  to  writing  and  signed  as  soon  as 
possible. 

The  following  maxims  will  apply  to  all  Insur- 
ance transactions. 

1.  Always  adhere  strictly  and  accurately  to 
the  facts. 

2.  See  that  the  applicant  reads  and  under- 
stands the  application,  the  by-laws  and  the  policy. 

3.  See  that  the  descriptions  are  full,  clear  and 
exact. 

4.  The  powers  and  authorities  granted  by  the 
company  to  the  agent  should,  under  no  circumstances 
be  transcended. 

5.  In  case  of  loss  or  damage  the  agent  should 
inform  the  loser  that  the  company  will  pay  all  just 
claims,  but  should  not  estimate  the  amount  of  loss, 
nor  act  as  adjuster  without  authority. 

6.  All  doubtful  questions  should  be  referred  to 
headquarters. 


OF  MUTUAL  INSURANCE 


145 


The  agent  who  lives  up  to  these  maxims  will 
never  come  in  conflict  with  the  laws. 

GIVE  FULL  DESCRIPTION. 

The  location  of  insured  property  should  be 
plainly  and  clearly  set  forth.  Buildings  should  be 
accurately  described  and  lot  and  block  numbers 
should  be  correct.  When  errors  occur,  courts  will 
order  the  policy  reformed  to  comply  with  the  inten- 
tion of  the  contracting  parties.  But  it  is  much  better 
to  avoid  trouble  by  giving  full  and  accurate  descrip- 
tions. Generally,  if  the  insured  can  show  that  he  in- 
tended to  insure  a certain  property  and  that  he 
pointed  it  out  to  the  agent  who  took  due  notice  of 
his  act,  the  courts  will  hold  the  company,  even  if 
error  should  be  found  in  the  description. 

While  there  is  very  little  trouble  about  build- 
ings, merchandise,  household  furniture  and  movable 
property  generally  may  raise  questions  not  so  easily 
disposed  of.  The  courts  have  not  always  followed 
in  line,  and  some  decisions  have  added  to  the  con- 
fusion. To  begin  with,  there  is  the  famous  sealskin 
case.  A sealskin  garment  insured  as  in  a certain 
dwelling  house  was  taken  elsewhere  for  repairs  and 
while  in  that  place  was  burned.  Held  that  it  was 
covered  by  the  policy.  On  the  other  hand  a hack  or 
vehicle  insured  as  contained  in  a certain  stable  is 
insured  or  not  when  elsewhere  depending  somewhat 
on  the  courts.  Three  courts  so  far  have  held  that  no 
liability  attaches  when  in  a shop  for  repairs.  Two, 


146 


A HAND  BOOK 


so  far,  have  decided  that  the  words  “ contained  in” 
merely  indicate  the  ordinary  location  of  the  vehicle 
and  that  the  company  was  liable  when  the  vehicle 
was  destroyed  by  fire  in  a shop  at  some  distance. 

Linen,  insured  as  part  of  household  goods  con- 
tained in  a certain  building,  was  not  covered  by  the 
policy  when  hanging  on  the  clothes  line. 

A harvesting  machine  insured  during  operation 
and  in  transit  is  not  covered  while  standing  still. 

Differences  in  the  wording  of  the  policy  may  ac- 
count for  a few  of  these  cases  but  there  are  also  in- 
consistencies. 

To  avoid  all  such  perplexities  it  is  well  to  see 
that  the  descriptions  in  the  policies  are  made  to  ex- 
press just  what  is  intended.  In  the  sealskin  case  if 
it  was  intended  that  there  should  be  no  risk  except 
while  the  garment  was  in  the  building,  it  should  have 
been  stated  that  the  policy  was  in  force  only  while 
the  garment  was  in  said  building. 

In  the  case  of  the  vehicle  the  same  is  true.  The 
matter  should  have  been  clearly  stated.  In  the  har- 
vester case  it  is  plain  that  there  was  an  omission.  The 
machine  was  insured  when  running,  and  while  mov- 
ing from  place  to  place,  but  the  policy  contained 
nothing  about  the  risk  while  standing  still  or  while 
it  was  stored  for  the  idle  season. 

The  agent  and  the  company  also  should  be  care- 
ful to  see  that  the  policy  covers  just  what  the  policy 
holder  desires.  In  some  of  the  cases  alluded  to  it  is 
probable  that  the  loss  took  place  under  circumstances 


OF  MUTUAL  INSURANCE 


147 


not  anticipated  by  either  the  insurer  or  the  insured. 
In  others,  the  policy  holder  was  evidently  not  aware 
of  the  omission. 

GIVE  FAIR  DESCRIPTIONS. 

In  the  interest  of  fairness  as  well  as  of  avoiding 
trouble  the  agent  should  see  that  the  application  and 
the  policy  cover  the  risk  as  desired  by  the  policy 
holder.  In  the  case  of  the  harvester,  the  agent 
should  have  called  attention  to  the  fact  that  the 
machine  was  not  insured  during  the  idle  season.  The 
company  would  have  profited  by  it  in  the  long  run. 

There  is  an  old  saying,  “Let  the  buyer  beware,’ ’ 
meaning  that  he  must  take  all  risk  of  his  own  lack 
of  business  knowledge  and  of  the  agent’s  errors  in 
filling  out  the  policy.  This  has  no  place  in  Mutual 
dealings.  A fair  contract,  understood  in  the  same 
sense  by  both  parties,  is  the  only  true  Mutual  Insur- 
ance. 

These  should  be  avoided,  and  also  any  other 
matter  which  may  relate  to  or  change  in  any  manner 
the  printed  terms.  The  careless  remarks  of  Insur- 
ance officials  are  a source  of  endless  trouble.  Verbal 
permits  by  agents,  if  within  the  lines  of  their  duty, 
bind  the  company,  and  not  unfrequently  they  hold 
even  when  in  conflict  with  the  policy.  It  is  not  worth 
while  to  quote  authorities  to  show  just  what  the 
agent  may  say  and  what  he  may  not,  the  broad  prin- 
ciple that  he  shall  commit  to  writing  all  agreements, 
permits,  or  other  matters  of  business,  will  keep  him 
safe.  If  he  violates  this  he  is  almost  sure  to  get  into 
trouble. 


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A HAND  BOOK 


HINTS  ON  ADVERTISING. 

Mutuals  and  Mutual  agents  must  advertise.  It 
is  not  a question  of  inclination,  but  of  duty.  If  they 
can  benefit  their  fellow  men  they  are  in  duty  bound 
to  make  the  fact  known  as  widely  as  possible.  This 
statement  needs  no  proof. 

How  shall  Mutuals  advertise?  They  should  use 
the  same  means  employed  by  all  other  business  es- 
tablishments. Circulars,  pamphlets,  signs,  advertis- 
ing novelties,  newspapers,  all  these  are  good.  Effec- 
tive advertising  does  three  things,  it  calls  the  atten- 
tion of  the  people,  tells  them  precisely  what  they 
wish  to  know,  and  adheres  to  the  exact  truth. 

Evidently  the  first  requisite  of  general  advertis- 
ing is  to  be  attractive.  In  circulars,  pamphlets,  etc., 
neatness  and  style  are  important.  The  heading  or 
the  title  should  be  neat  and  conspicuous.  Every- 
thing coarse,  “loud”  or  vulgar  should  be  carefully 
avoided.  Too  much  ornament  is  also  bad.  Neat  and 
simple  circulars,  pamphlets,  with  attractive  covers, 
novelties  which  are  useful  as  well  as  new,  are  all 
available  and  a reasonable  use  of  these  will  pay. 
They  are  generally  furnished  by  the  company. 

The  local  advertising  in  done  by  the  agent.  This 
is  confined  to  the  distribution  of  matter  furnished  by 
the  company,  and  to  advertisments  and  reading  mat- 
ter inserted  in  the  local  newspapers.  Here  is  the 
opportunity  for  a shrewd  agent.  A fire  occurs  in  the 
county.  If  in  his  company,  he  watches  matters  and 
when  it  is  adjusted  he  gets  the  certificate  of  the  loser 


OF  MUTUAL  INSURANCE 


149 


that  he  was  paid  in  full  and  is  satisfied.  This  is  the 
best  kind  of  an  advertisement.  It  gives  confidence. 

If  the  loser  was  insured  in  some  other  company, 
or  not  at  all,  the  merits  of  the  agent’s  own  company 
should  be  set  forth,  and  some  certificate  of  loss  from 
another  locality  may  accompany  the  matter  if 
deemed  best. 

These  advertisements  of  whatever  kind  should 
always  give  the  information  the  people  ask  for.  The 
agent  will  remember  the  questions  propounded  to 
him,  and  if  he  answers  those  he  will  get  up  good  mat- 
ter for  the  company.  What  one  man  wants  to  know, 
the  others  generally  ask  about,  and  will  read  about. 
It  requires  some  judgment  to  do  exactly  the  right 
thing  at  the  right  time,  but  a little  practice  will  ren- 
der one  quite  expert. 

Above  all,  and  over  all,  advertisments  must  be 
exactly  and  strictly  truthful.  To  impress  on  the  cus- 
tomer the  facts  just  as  they  are  is  always  good  policy. 
To  do  anything  else  is  unsafe.  Supposing  an  Insur- 
ance contract  to  be  made  on  the  basis  of  a deceptive 
advertisement,  is  case  of  suit  the  jury  would  assur- 
edly consider  the  fact  in  construing  the  contract. 

But  no  matter  how,  when  or  where  the  adver- 
tising is  done,  it  must  be  done  carefully.  A slovenly 
or  carelessly  written  notice  is  offensive.  Circulars 
scattered  without  discretion  are  wasted,  but  judici- 
ous work  will  pay  and  pay  well. 


150 


A HAND  BOOK 


MUTUAL  AGENCY  RESPECTABLE  AND  PLEASANT. 

In  closing  this  chapter,  it  may  be  remarked  that 
the  unpleasant  cases  alluded  to  are  the  exceptional 
ones.  The  agent  will  find  his  position  respectable 
and  his  work  pleasant.  The  great  mass  of  men  with 
whom  he  comes  in  contact  will  be  fair  and  courteous. 
There  are  no  more  disagreeable  complications  in  the 
Mutual  line  than  in  any  other.  Unreasonable  men 
are  found  everywhere.  Happily  they  are  in  a very 
small  minority.  Eascals  are  still  fewer,  though  they 
do  sometimes  trouble.  And  further,  the  Mutual 
agent  who  has  selected  this  line  for  his  life  business 
will  in  a very  few  years  get  beyond  and  above  these 
tormentors  and  where  he  will  be  entirely  out  of  their 
reach.  And  then  there  will  be  few  positions  which 
will  be  more  desirable  than  his. 


CHAPTER  IX. 


THE  ASSESSMENTS. 

THE  BASIS  OF  MUTUALISM. 

The  basis  of  Mutualism  or  co-operation,  and 
without  which  there  can  he  neither  Mutualism  nor  co- 
operation, is  that  each  shall  pay  his  just  and  equit- 
able share  of  actual  cost.  In  a Mutual  company 
there  is  neither  stock  nor  stockholders  to  draw  divi- 
dends at  the  expense  of  the  insured,  but  every  policy 
holder  is  a member  entitled  to  a voice  in  the  manage- 
ment and  a share  in  the  benefits.  The  assets  of  a joint 
stock  company  belong  to  the  stockholders,  the  policy 
holder  has  no  other  interest  than  the  safety  of  his 
Insurance.  The  possessions  of  the  Mutuals  belong 
to  its  policy  holders.  The  joint  stock  company  has 
very  little  trouble  in  fixing  its  rate,  it  charges  all  it 
can,  and,  as  in  many  other  lines  of  business,  that  is 
the  simple  solution  of  the  whole  matter. 

Not  so  with  the  Mutuals.  How  to  collect  the 
funds  required  to  pay  expenses  and  fire  waste  in  the 
manner  least  burdensome  to  the  policy  holder  is  not 
an  easy  question  to  settle.  The  word  “assessment” 
itself  conveys  this  idea,  it  means  literally  a “sitting 
down  together”  hence,  a thorough  consideration. 
There  are  broad  differences  both  in  theory  and  in 
practice.  There  are  Mutuals  which  collect  in  ad- 

—151 


162 


A HAND  BOOK 


vance  for  the  full  term  of  the  policy,  returning  the 
unused  excess  in  the  shape  of  dividends,  annually  or 
otherwise,  as  may  be  convenient.  At  the  other  ex- 
treme, there  are  Mutuals  which  carry  absolutely  no 
funds  on  hand,  assessing  on  the  occasion  of  every 
loss.  Between  these  extremes  there  is  a bewildering 
variety  of  methods,  the  outgrowth  of  the  circum- 
stances which  surround  the  several  companies.  Each 
organization  seems  to  be  satisfied  with  its  own  man- 
agement, and  all  seem  to  work  together  smoothly. 
However  the  funds  are  raised,  they  are,  nevertheless, 
assessments.  It  matters  not  whether  they  are  col- 
lected all  at  once,  in  advance,  annually,  or  as  needed 
to  pay  accrued  losses,  they  are  sums  levied  to  cover 
fire  waste  and  expenses,  and  not  fixed  charges  for  in- 
demnity. They  are  sums  based  on  certain  carefully 
ascertained  needs,  and  not  prices  limited  only  by 
the  competition  of  the  market. 

WHAT  IS  A VALID  ASSESSMENT? 

Under  these  circumstances,  in  the  Mutual  field, 
the  assessment  becomes  a matter  of  the  first  impor- 
tance. It  must  be  levied  (1)  by  the  proper  authority, 
(2)  for  the  proper  purpose,  and  (3)  in  the  proper 
manner.  And  the  notices  to  the  policy  holder  must 
be  legal. 

The  authorities  in  these  matters  are  (1)  the  laws 
of  the  state  in  which  the  company  is  located,  (2)  the 
by-laws  of  the  company  itself,  (3)  the  rulings  of  the 
courts  in  cases  which  have  been  decided,  and  (4)  the 
ordinary  and  usual  business  practices. 


OF  MUTUAL  INSURANCE 


153 


The  statutes  of  many  states  are  silent  on  the 
matter.  In  those,  the  by-laws  of  the  company  will 
govern. 

A valid  assessment  is  one  levied  in  exact  accord- 
ance with  the  laws  of  the  state  and  the  by-laws  of  the 
company.  Every  provision  is  observed,  every  tech- 
nicality complied  with,  the  proper  condition  authoriz- 
ing the  levy  being  shown  to  exist  at  the  time. 

STATE  LAWS. 

Most  of  the  states  have  but  few  provisions. 

Illinois  has  somewhat  elaborate  provisions.  The 
president  shall  convene  the  directors,  etc.  In  the 
case  of  live  stock  companies,  in  the  absence  of  a quo- 
rum, the  president,  secretary  and  treasurer  shall 
estimate  the  rate  percent  necessary  to  cover  the  loss, 
etc. 

Maine  places  the  whole  matter  in  the  hands  of 
the  directors. 

Massachusetts  provides  that  the  directors  shall 
manage  the  business  and  that  assessments  shall  be 
made  from  time  to  time. 

New  Jersey  directors  may  assess  over  and  above 
the  amount  required  not  to  exceed  20  per  cent  of  de- 
posit note. 

These  are  sufficient  to  illustrate. 

The  second  authority  is  the  by-laws  of  the  com- 
pany. Generally  these  provide  that  the  directors 
shall  levy  the  assessments  as  well  as  manage  the  de- 
tails. 


154 


A HAND  BOOK 


Great  care  should  be  taken  that  the  officials 
should  be  able  to  show  conclusively  that  all  the  pro- 
visions of  the  statutes  and  the  by-laws  were  fully  and 
fairly  complied  with.  The  records  of  the  meeting  at 
which  the  assessment  is  levied  should  be  complete 
and  in  proper  form.  When  the  publication  of  notice 
is  required,  a copy  of  the  affidavit  of  publication 
should  be  filed  as  part  of  the  records.  And  after  all 
this  is  done,  the  ordinary  business  rules  and  customs 
and  the  constructions  of  the  courts  must  he  carefully 
observed.  Technicalities  must  he  avoided  as  much  as 
possible.  They  increase  risks.  When  possible,  such 
business  should  be  transacted  at  regular  meetings. 
The  chance  of  irregularity  in  calling  a special  meet- 
ing will  then  be  avoided. 

The  assessment  must  be  for  a purpose  within 
the  provisions  of  the  state  laws  and  also  of  the  by- 
laws. As  there  are  over  two  thousand  Mutuals  in 
the  United  States,  the  variety  of  usage  is  beyond 
the  range  of  discussion. 

CHARTERED  AND  OTHER  COMPANIES. 

And  there  is  still  another  class  of  companies.  In 
Connecticut,  and  perhaps  some  other  states,  each 
company  has  a special  charter  from  the  general  as- 
sembly or  legislature.  Any  attempt  to  discuss  them 
would  be  a failure,  for  they  have  very  little  relation 
to  the  subject  in  general.  Each  company  looks  to 
its  own  charter  for  its  guidance. 

Among  the  so  styled  4 i Cash  Mutuals, ’ ’ which  are 
numerous  in  the  eastern  states,  and  among  the  class 
Mutuals  which  make  annual  settlements,  and  also  in 


OF  MUTUAL  INSURANCE 


155 


some  other  forms,  which  collect  for  the  full  term  in 
advance,  the  question  of  assessments  changes  its 
form.  The  estimate  of  expenses  and  fire  waste  is, 
in  many  instances,  made  for  years  at  once  and  the 
whole  amount  is  paid  in  when  the  policy  is  issued. 
In  this  case  there  are  no  forms  of  notice  to  consider. 
The  amount  to  be  returned  to  the  policy  holder,  as 
profit  or  dividend,  is  the  one  which  receives  the  care- 
ful attention  of  the  directors. 

Nor  is  the  question  of  reserve  a disturbing  ele- 
ment. As  these  reserves  are  generally  more  an  evi- 
dence of  good  faith  and  ability  to  pay  than  anything 
else,  they  may  be  counted  in  as  part  of  the  necessary 
expenses  for  which  the  levy  is  made. 

A Vermont  decision  that  “A  member  of  a Mu- 
tual company  is  presumed  to  know  its  by-laws,  and 
is  bound  by  them,  they  being  on  the  same  sheet  as 
the  policy  issued  by  it  to  him,  and  attention  being 
directed  to  them  in  the  body  of  the  contract”  is  im- 
portant only  where  such  a form  of  policy  is  used,  and 
even  then  a jury  might  disregard  this. 

WHEN  TO  LEVY  ASSESSMENTS. 

There  is  no  general  rule.  Some  companies  levy 
assessments  after  each  loss,  raising  only  the  amount 
actually  required ; others  assess  when  ten  percent  is 
required  to  pay  losses  and  others  still  make  annual 
calls.  In  the  two  cases  last  mentioned  the  companies 
borrow  to  meet  the  payments  due  on  losses  in  the 
meantime.  Others  still,  whenever  an  assessment  is 
required,  call  for  a little  more  than  is  needed,  hold- 


156 


A HAND  BOOK 


ing  the  small  surplus  until  it  is  exhausted.  Then 
there  are  those  which  assess  in  advance,  either  as  the 
directors  think  advisable  or  annually ; and  finally, 
there  are  those  which  call  for  the  whole  premium  in 
advance,  returning  the  unused  portion  in  the  shape 
of  dividends.  All  of  these  methods  are  advocated, 
each  having  its  partizans  who  show  proofs  of  its  use- 
fulness. The  different  methods  are  used  in  different 
localities.  The  old  settled  farming  communities  of 
the  western  states  assess  after  a loss,  and  in  order  to 
avoid  too  frequent  assessment,  borrow  to  pay  small 
losses.  Where  the  population  is  changing,  the  annual 
advance  assessment  is  the  favorite,  while  in  the  east, 
the  cash  in  advance  plan  is  very  popular  though  by 
no  means  universal. 

The  arguments  of  those  who  only  assess  after  a 
loss,  are  that  this  plan  entirely  prevents  the  accumu- 
lations of  funds  in  the  hands  of  the  company,  that 
the  money  remains  in  the  hands  of  the  policy  holder 
until  it  is  actually  needed  to  pay  losses,  and  that 
there  is  no  loss  of  interest.  Those  that  borrow  argue 
that  frequent  assessments  are  expensive  and  waste- 
ful, that  while  the  member  has  to  pay  his  share  of  the 
interest,  he  has  had  the  use  of  the  delayed  assess- 
ment as  an  equivalent  and  the  saving  in  the  expense 
of  assessments  is  a considerable  item.  These  argu- 
ments are  conclusive  in  the  case  of  those  companies 
which  do  business  in  a limited  area,  and  among  peo- 
ple whose  residence  is  permanent,  and  where  by  a 
process  of  continual  selection  they  have  eliminated 
the  moral  hazard.  There  are  cases  in  which  every 
insured  member  is  known  at  headquarters.  They 


OF  MUTUAL  INSURANCE 


157 


are  doing  all  the  business  they  care  to  do,  and  such 
occurences  as  default  in  assessment,  dropping  out 
while  in  debt  to  the  company  or  making  a fraudulent 
claim  are  entirely  unknown.  But  such  forerunners 
of  the  millennium  are  all  too  few.  The  greater  num- 
ber of  companies  do  not  do  business  with  such  ex- 
ceptional constituencies,  which  have  reached  their 
high  plane  only  after  years  of  effort.  In  the  average 
company  it  has  been  found  advisable  to  use  some 
method  which  will  secure  it  from  loss  if  a member 
should  allow  his  policy  to  lapse  for  non-payment  of 
assessment.  In  case  of  sale  of  property  or  of  change 
of  residence,  men  are  often  careless  about  transfer- 
ing  their  policies  to  the  buyer  or  having  them  can- 
celled, and  the  first  notice  the  company  has  is  the  re- 
turn of  its  notice  of  assessment.  If  the  company  fails 
to  collect,  it  loses.  But  where  the  company  assesses 
in  advance,  in  case  of  failure  to  collect,  it  cancels  the 
policy  without  loss  and  that  ends  the  matter.  Some- 
times small  membership  fees,  or  policy  fees,  are 
charged  in  addition  to  make  it  absolutely  sure  that 
the  member  cannot  leave  the  company  in  its  debt. 

ADVANCE  ASSESSMENT. 

The  cash  in  advance,  or  rather  the  full  advance 
assessment,  plan  is  in  favor  with  lodges,  churches 
and  all  bodies  whose  business  is  transacted  by  boards 
of  trustees  or  directors.  These  find  it  inconvenient 
to  meet  on  the  occasion  of  every  assessment  and  pre- 
fer to  deposit  in  advance  to  cover  the  probable  cost 
during  the  life  of  the  policy,  receiving  its  unearned 


158 


A HAND  BOOK 


portion  as  a dividend  at  the  expiration  of  the  term. 
This  is  actually  nothing  more  than  depositing  in  the 
hands  of  the  company,  a sum  to  be  drawn  on  as  as- 
sessments are  called  for. 

There  is  still  another  class  which  collect  in  ad- 
vance and  never  assess  at  all.  Nearly  all  of  these 
companies  are  located  in  the  eastern  states.  Their 
rates  are  high,  but  they  return  large  dividends,  20, 
40  or  60  per  cent,  according  to  the  time  the  policy 
runs,  giving  the  long  term  an  advantage.  Besides 
this,  most  of  them  make  an  extra  dividend  in  such  a 
manner  that  each  five-year  policy  holder  gets  back 
whatever  he  has  paid  in  over  the  actual  cost  of  his 
Insurance. 

Most  of  these  companies  carry  strong  reserves, 
too.  This  is  done  to  meet  the  competition  of  the  old 
line  companies,  which  never  tire  of  tooting  their 
horns  about  the  surplus  which  they  carry  on  hand. 
These  Mutuals  are  successful.  Among  them  are  some 
of  the  oldest  and  strongest  Mutuals  in  the  country. 

In  all  these  the  Mutual  principle  is  strictly  ob- 
served, for  each  member  pays  his  share  of  the  cost, 
and  no  more.  The  method  of  collection  cuts  no  fig- 
ure at  all. 

LEGAL  NOTICE  OF  ASSESSMENT;  WHAT  IT  IS. 

This  is  a question  which  especially  concerns  the 
Mutuals  in  cases  of  assessment.  Statutory  enact- 
ments require  Mutual  officials  to  notify  all  members 
of  assessments  levied,  and  to  collect  by  legal  means 
from  those  who  neglect  or  refuse  to  respond.  Fail- 


OF  MUTUAL  INSURANCE 


159 


ing  to  perform  this  duty,  they  are  themselves  held 
responsible.  Litigation  may  occur  when  the  holder 
of  a suspended  policy,  having  a loss,  claims  that  he 
had  no  notice  of  assessment,  and  also  when  a col- 
lection is  resisted  on  the  same  ground. 

Service  by  mail  is  the  only  practicable  method, 
and  in  many  states  this  is  established  by  statutory 
enactment,  in  others  it  prevails  by  custom.  The  ser- 
vice is  complete  when  the  notice  is  deposited  in  the 
postoffice,  properly  directed  and  duly  prepaid,  i.  e., 
the  official  has  done  all  that  there  is  for  him  to  do. 
Such  service  should  be  proved  by  the  affidavit  of  the 
party  mailing  the  notices. 

PROOF  OF  SERVICE. 

In  some  states  there  is  no  prescribed  form  of 
proof,  in  others  the  affidavit  is  set  forth  in  the  stat- 
utes. In  Kansas,  for  example,  Section  3490  of  the 
Revised  Statutes  of  1890  says:  “After  publication 
of  such  notice  of  assessment  and  the  service  of  such 
upon  each  member  by  mail  postpaid,  directed  to  him 
at  his  postoffice  as  written  upon  his  application  for 
Insurance,’ ’ etc.  In  all  such  cases  the  affidavit  should 
conform  strictly  to  the  statutes. 

The  following  affidavit  is  from  forms  appended 
to  the  Insurance  laws  of  New  Jersey.  It  was  intend- 
ed to  apply  to  notices  to  stock  holders  but  is  of  gen- 
eral use. 

“I,  carefully  and  in  person,  compared  the  names 
and  addresses  on  the  said  envelopes  with  the  books 
of  the  said  company  and  can  swear  of  my  own  knowl- 


160 


A HAND  BOOK 


edge  that  there  was  a separate  envelope  addressed 
to  each  member  of  said  company  in  the  United 
States.  I deposited  these  myself,  personally  in  the 

postoffice  at on  the day  of 

nineteen  hundred  and ” 

Such  an  affidavit  relieves  the  company  and  its 
officers  from  personal  responsibility  but  in  case  of 
suit  in  a distant  court,  a jury  might  hold  that  a pro- 
cess sufficient  to  release  an  official  from  further  re- 
sponsibility still  fell  short  of  what  was  necessary  to 
hold  a delinquent.  A shrewd  attorney  would  not  find 
it  difficult  to  convince  a jury,  already  inclined  to 
favor  a neighbor  against  a 4 ‘foreign  corporation’ ’ 
that  the  testimony  that  the  notice  had  not  been  re- 
ceived was  ample  proof  that  it  had  not  been  mailed, 
that  there  was  a blunder  at  headquarters.  A verdict 
against  the  company  would  be  sure  to  follow.  In 
bringing  suit  it  is  unsafe  to  rely  solely  upon  the  mail- 
ing of  the  notice.  Where  the  statute  or  form  of 
notice  uses  the  word  “postoffice,”  depositing  the 
notices  in  a mail  box  will  not  answer.  They  must  be 
put  in  the  postoffice. 

A SAFE  PRACTICE. 

Fortunately  the  troublesome  class  is  extremely 
limited.  Men  insure  for  protection  and  will  gener- 
ally respond  to  an  assessment  at  once  in  order  to 
keep  their  policy  good.  But  there  are  others,  some 
are  careless,  occasionally  some  one  desires  to  avoid 
his  obligations.  Sometimes  a man  sells  out  and  then 
attempts  to  evade  his  assessment,  and  some  men  will 


JOHN  J.  FURLONG,  AUSTIN,  MINNESOTA. 

Though  a native  of  Ireland,  Mr.  Furlong  has  lived  over  forty 
years  in  Minnesota  where  in  the  early  eighties  he  began  a career 
in  the  State  Legislature.  About  this  time  he  was  one  of  the  or- 
ganizers of  the  Mower  County  Mutual  Fire  and  Hail  Insurance 
Co.,  and  was  for  many  years  and  is  now  its  president.  He  is  also 
treasurer  of  the  -»tate  Cyclone  Mutual  Insurance  Co.  and  was 
vice  president  of  the  National  Association.  He  has  been  very 
active  in  public  life  but  has  a model  stock  farm  which  is  his 
pride.  His  is  a life  whose  motto,  ‘‘Keep  busy  and  you  will  be 
happy,”  is  practically  exemplified. 


J.  C.  McMANIMA,  SPRINGFIELD,  MISSOURI. 

J.  C.  McManima  was  born  in  Ohio  of  Scotch-Irish  parentage 
and  as  a young  man  went  to  Iowa,  thence  to  Dakota  in  1884.  He 
took  an  active  part  in  politics,  and  was  the  last  territorial  audi- 
tor of  Dakota.  He  moved  to  Springfield,  Mo.,  in  1894,  and  has 
been  engaged  in  literary  work  much  of  his  time  since  1877.  He 
established  the  “ Policy  Holder"  in  1897. 


OF  MUTUAL  INSURANCE 


161 


not  take  from  the  postoffice  anything  which  they  sus- 
pect contains  a dun.  As  the  officials  are  often  obliged 
to  deal  with  these  men  in  court,  they  must  have  indis- 
putable proof  of  service  of  notice.  In  case  the  first 
notice  receives  no  reply,  a second  should  be  sent,  and 
it  should  be  registered.  If  received  and  receipted 
for,  the  evidence  of  service  is  complete.  If  returned 
as  not  delivered,  the  matter  should  be  investigated 
still  further.  The  postoffice  regulations  concerning 
returned  matter  say:  (Sec.  672-7)  “All  request, 
card,  or  official  matter  of  any  class  returned  to  sender 
must  bear  upon  its  face  the  reason  of  such  return  as 
‘Refused’,  ‘Removed’,  ‘Present  address  unknown’, 
‘Deceased’  ‘Unclaimed’,  ‘Cannot  be  found’  and  must 
also,  in  every  instance,  be  endorsed  ‘Returned  to 
Writer’,  and  bear  the  postmark  of  the  office  from 
which  it  is  returned.  ’ ’ 

The  returned  registered  letter  should  be  exam- 
ined and  the  endorsements  on  the  envelope  noted. 
If  there  is  the  least  doubt,  the  postmaster  should  be 
written  to  for  further  information  and  if  possible 
the  present  address  of  the  delinquent  should  be  ob- 
tained. A simple  “Unclaimed”  should  never  be  ac- 
cepted as  final. 

All  this  is  not  legally  incumbent  upon  the  offic- 
ials but  it  works  so  well  that  in  practice  they  are  just- 
ified in  adopting  it,  the  additional  collections  and  the 
saving  of  trouble  more  than  compensating  for  the 
trifling  additional  expense  of  obtaining  conclusive 
evidence  upon  all  who  can  be  found  and  ascertaining 
the  names  of  those  who  are  out  of  reach  and  should 
10 


162 


A HAND  BOOK 


no  longer  be  carried  on  the  books.  It  is  the  safe 
method  legally  and  the  best  from  a business  stand- 
point. These  principles  apply  elsewhere,  bearing  in 
mind  that  it  is  only  necessary  to  register  letters  when 
litigation  is  possible.  It  is  sometimes  asked  if  the 
fact  that  a letter  bearing  a return  request  does  not 
come  back  to  the  writer  is  not  proof  that  it  was  duly 
received  by  the  party  addressed.  It  raises  a pre- 
sumption. It  will  not  do  to  depend  upon  it  as  proof. 

HOW  ONE  COMPANY  MANAGES  IT. 

A large  and  successful  Mutual,  whose  business 
covers  an  entire  state,  has  adopted  substantially  the 
following  plan:  When  an  assessment  is  made,  a 
notice  is  mailed  to  each  policy  holder  in  an  envelope 
bearing  a request  to  the  postmaster  to  return  after 
thirty-five  days  if  not  delivered.  This  is  five  days 
longer  than  the  time  in  which  the  assessment  must  be 
paid.  A very  large  percentage  of  these  will  be  an- 
swered by  return  mail  and  nearly  all  before  the  expi- 
ration of  the  thirty-five  days.  Occasionally  some 
postmaster  returns  a notice  before  the  expiration  of 
the  time  with  the  mark  4 ‘ Unclaimed, ’ 9 ‘ ‘ Removed,’ ’ 
etc.  This  is  immediately  forwarded  to  the  Postoffice 
Department  with  the  request  that  it  remain  at  the 
proper  postoffice  the  proper  length  of  time.  The  De- 
partment attends  to  the  matter  and  that  postoffice 
makes  no  further  trouble.  At  the  end  of  the  thirty- 
five  days  all  unclaimed  notices  come  back  properly 
endorsed  and  postmarked  by  the  returning  office. 
These  are  proofs  that  the  notice  was  mailed  and  that 


OF  MUTUAL  INSURANCE 


163 


it  lay  in  the  postoffice  for  a period  covering  the  entire 
time  allowed  to  pay  the  assessment. 

There  will  also  be  a few  which  are  not  returned 
and  which  have  not  been  heard  from,  presumably 
they  have  either  been  received  and  neglected  or  lost 
on  the  way.  Then,  the  registry  method  is  tried  and 
the  agents  are  also  written  to  and  requested  to  use 
their  best  efforts  to  find  the  delinquent.  This  pro- 
cess is  kept  up  until  the  company  becomes  satisfied 
that  every  one  within  reach  is  notified.  The  result 
is  that  when  some  one  holding  a suspended  policy  has 
a loss  and  endeavors  to  collect  on  the  policy,  denying 
the  receipt  of  the  notice,  the  company  has  the  regis- 
tered letter,  and  generally  the  agent ’s  report  in  addi- 
tion, constituting  a perfectly  good  defense,  and  the 
same  evidence  is  sufficient  to  justify  a verdict  in  case 
the  company  brings  suit  to  collect  assessment.  As 
was  above  remarked,  the  extra  collections  more  than 
repay  the  cost  of  these  proceedings,  to  say  nothing 
of  setting  at  rest  blackmailing  suits  on  suspended 
policies. 

The  same  principles  apply  to  all  other  notices. 
Whenever  a dispute  is  likely  to  arise,  the  company 
should  not  only  have  proof  that  the  letter  was  mailed 
but  that  it  reached  its  destination.  In  a case  decided 
not  long  since,  an  Insurance  company  employed  a 
man  in  a capacity  something  like  a general  agent, 
paying  him  a fixed  salary.  After  a time  the  presi- 
dent of  the  company  wrote  him  that  his  remuneration 
in  the  future  would  depend  on  his  commissions.  At 
a later  date  the  president  wrote  him  giving  him 


164 


A HAND  BOOK 


directions  for  his  work.  Finally  the  agent  denied  the 
receipt  of  the  letter  changing  his  mode  of  remunera- 
tion and  brought  suit  for  his  salary  for  the  entire 
time  he  worked  for  the  company.  The  court  gave  a 
verdict  in  his  favor.  Had  the  president  registered 
his  notice  of  the  change  in  mode  of  remuneration,  it 
would  have  saved  the  company  many  hundred  dollars. 
In  all  such  cases  and  where  disputes  are  probable, 
it  is  best  to  register  the  first  letter.  Ordinarily  open 
mail  will  answer,  leaving  those  who  do  not  respond 
to  be  reached  by  register.  It  is  advisable  to  act  on 
the  supposition  that  whoever  asserts  that  he  gave 
notice  by  mail  shall  be  prepared  to  prove  by  the 
registry  receipt  that  the  letter  was  actually  received. 
This  receipt  does  away  with  all  other  proof,  for  it 
shows  who  mailed  the  letter,  when  and  where,  and 
who  received  it,  when  and  where.  It  is  full  and  con- 
clusive evidence. 

Summing  up,  modern  courts  and  juries  require 
an  official,  whose  duty  it  is  to  give  notice,  to  use 
reasonable  diligence  to  see  that  the  notice  is  duly  re- 
ceived by  the  party  to  whom  it  was  sent.  He  must 
in  all  cases  comply  with  the  statutes  and,  in  addition, 
make  use  of  any  means  at  hand,  in  short,  he  must 
get  the  notice  to  the  party  and  get  a receipt  for  it  or 
show  why  he  could  not.  The  spirit  of  equity,  which 
is  more  and  more  asserting  itself  among  men,  will 
not  be  satisfied  with  any  thing  short  of  this  as  legal 
notice. 


OF  MUTUAL  INSURANCE 


165 


AVOID  EXCESSIVE  LEVIES. 

Assessments  should  he  so  managed  as  to  avoid 
excessive  levies,  especially  with  new  companies.  It 
takes  time  to  educate  people  along  these  lines.  Even 
after  years  of  experience,  after  a policy  holder  has 
passed  two  or  three  years  without  an  assessment,  a 
heavy  loss  will  cause  an  expense  which  will  frighten 
away  many,  even  though  the  average  is  exceedingly 
low.  Localities  are  reported  where  several  Mutuals 
are  working  in  the  same  territory.  A heavy  loss  in 
one  of  them  will  cause  a large  number  to  change  to 
one  of  the  others  when  the  policy  expires.  They 
stay  there  until  another  big  levy  comes  along,  and 
then  away  they  go  again.  Of  course,  this  is  foolish, 
but  it  is  done.  Where  it  is  possible,  in  case  of  very 
light  losses,  a little  should  be  raised  in  excess  of  actu- 
al needs,  and  carried  over  to  reduce  the  assessment 
when  the  heavy  loss  does  come,  as  it  surely  will  some- 
time. There  are  a large  number  of  Mutuals  which 
assess  in  advance,  and  collect  old  line  rates,  return- 
ing at  the  end  of  each  year,  the  unexpended  portion. 
They  are  loud  in  the  praises  of  that  method.  Most 
of  these  write  only  one  year  risks.  They  claim  that 
they  have  no  trouble  at  all,  and  some  of  them  say 
they  have  never  failed  to  return  a dividend. 

But  in  this  as  in  every  other  line  of  business,  it 
is  necessary  for  people  to  use  the  sense  that  the  Cre- 
ator has  given  them.  So  long  as  people  will  refuse 
to  look  at  the  facts,  just  so  long  will  the  smooth 
tongued  representative  of  the  old  line  companies 
persuade  them  that  they  are  liable  to  be  assessed  for 


166 


A HAND  BOOK 


all  they  are  worth,  so  long  will  he  select  a single 
heavy  assessment,  multiply  it  by  five  to  compare 
with  his  own  five-year  rate.  Even  in  states  where 
Mutual  Insurance  companies  have  been  successful 
for  half  a century  or  more,  there  are  still  those  who 
bite  at  this  unbaited  hook. 

HOW  COLLECTED. 

How  and  where  assessments  are  to  be  collected 
are  matters  of  convenience.  Some  contend  that  it  is 
cheapest  to  collect  for  the  whole  term  in  advance, 
that  it  costs,  on  the  average,  over  ten  cents  each  to 
collect  assessments,  excluding  postage,  drafts,  money 
orders,  etc.,  paid  for  by  the  policy  holder,  making  at 
least  six  cents  more,  all  of  which,  and  also  the  annoy- 
ance and  loss  of  the  delinquents,  is  saved  by  the  ad- 
vance assessment  plan.  This  is  true  with  regard  to 
the  large  companies,  whose  losses  number  several 
hundred  each  year.  But  in  1903,  of  the  199  Wiscon- 
sin Town  Mutuals,  93,  or  almost  half,  made  no  assess- 
ment. The  New  Hampshire  Town  Mutual  Compan- 
ies, Dec.  31,  1902,  report  the  date  of  last  assessment 
as  follows : 1898,  1 ; 1899,  2 ; 1900,  5 ; 1901,  2 ; 1902,  6 ; 
no  date  given,  3.  That  is,  excluding  the  three  not 
dated,  6 had  made  an  assessment  in  the  current  year, 
2 a year  previous,  5 two  years  previous,  2 three  years 
previous,  and  one  four  years  previous.  In  New 
Hampshire  the  companies  report  the  date  of  the  last 
assessment. 

Those  companies,  which  do  business  in  town- 
ships and  counties  or  in  areas  so  limited  that  every 
policy  holder  is  probably  known  to  one  or  more  of 


OF  MUTUAL  INSURANCE 


167 


the  directors,  have  developed  their  system  until  it 
appears  near  perfection.  It  works  admirably  till 
the  number  of  risks  and  consequent  increasing  fre- 
quency of  losses,  not  only  bring  about  assessment 
too  often,  but  afford  opportunity  for  unworthy  mem- 
bers to  smuggle  themselves  in  and  make  trouble. 

In  localities  where  the  township  system  is  in 
vogue,  the  township  collector  is  sometimes  employed 
by  Mutuals.  This  is  the  cheapest  and  most  effective 
method  known.  This  township  collector  is  a public 
officer  who  receives  the  taxes  in  his  township.  Some- 
times he  is  elected,  sometimes  he  is  appointed,  but 
very  frequently  the  office  is  let  to  the  lowest  bidder. 
Whoever  gets  it  is  allowed  to  carry  on  any  other  busi- 
ness he  pleases,  and  most  of  them  are  professional 
collectors.  They  do  the  work  excellently  and  cheap- 
ly, visiting  every  locality  in  their  township  every 
few  days  or  weeks  at  the  longest. 

Of  course  these  are  not  the  only  methods.  Some 
Mutuals  collect  through  the  banks  and  say  that  the 
practice  works  well.  Others,  especially  those  confin- 
ed to  small  territories,  make  personal  inquiry. 

RETURNED  LETTERS  MUST  BE  LOOKED  AFTER. 

A recent  case  will  illustrate  the  necessity  of  look- 
ing after  returned  letters  very  closely.  A policy 
holder  changed  his  address  from  a city  to  a postoffice 
nearer  his  farm.  The  postmaster,  however,  forgot 
it  and  when  the  notice  of  assessment  came,  returned 
it  marked  ‘ ‘ Unclaimed. ’ ’ Meanwhile  the  man,  anx- 
ious to  keep  up  his  policy,  inquired  of  the  agent  about 


168 


A HAND  BOOK 


his  assessment.  The  agent  told  him  to  rest  easy,  he 
would  he  notified  in  due  time.  The  company,  failing 
to  find  him,  suspended  the  policy.  Then  a loss  oe- 
cured,  and  the  facts  came  out.  The  company  paid 
the  loss.  But  this  shows  how  easily  trouble  might 
have  occurred,  and  how  close  and  careful  should  be 
the  investigation  in  all  such  cases. 

In  cases  of  death,  assignment,  apointment  of 
receivers,  etc.,  it  will  be  necessary  to  hunt  up  the 
proper  functionary.  In  these  cases,  continued  in- 
quiry will  generally  discover  the  facts  and  the  notice 
can  finally  be  served.  Never  omit  to  register  mail  in 
all  such  cases.  Make  sure  of  a receipt. 

Some  companies  draw  on  delinquents  through 
banks.  Those  which  have  tried  this  method  say  it 
works  excellently.  The  draft  is  made  on  the  delin- 
quent at  his  last  known  residence,  and  the  bank  is 
pretty  sure  to  find  him  if  he  is  within  reach. 

MUST  SEE  THAT  THE  INSURED  READS  HIS  POLICY. 

A ruling  was  made  in  the  case  of  Medley  vs.  Ger- 
man Alliance  Insurance  Co.  (West  Virginia)  that 
“Failure  to  read  a policy  of  Insurance  within  a short 
time  after  its  delivery  is  not  such  neglect  or  laches 
as  will  preclude  the  insured  from  having  a reforma- 
tion,’ ’ etc.  In  view  of  this  and  other  decisions  of 
similar  import,  it  is  absolutely  necessary  that  the 
agent  of  each  Mutual  sees  that  every  member  reads 
his  policy.  It  is  true  that  it  is  a presumption  of  law 
that  every  member  of  a fraternal  or  Mutual  is  sup- 
posed to  know  the  rules  and  regulations  of  the  order 
to  which  he  belongs.  But  juries  do  not  always  act 


OF  MUTUAL  INSURANCE 


169 


on  that  theory,  hence  the  caution  given  above.  If 
the  by-laws  are  printed  in  the  policy,  attention  should 
be  called  to  them.  If  they  are  in  the  application,  they 
should  he  read  before  signing,  and  the  same  rule 
should  be  observed  if  they  are  printed  separately. 

FAILURE  TO  PAY. 

When  the  by-laws  and  regulations  of  a Mutual 
fire  company  provide  that  failure  of  a member  to 
pay  assessments  within  a certain  time  after  notice 
shall  terminate  his  rights,  and  that  the  policy  shall 
be  cancelled  without  further  notice,  failure  to  pay 
an  assessment  within  the  time  limited  works  a for- 
feiture of  the  policy. 

But  an  acceptance  and  retention  by  the  company 
of  an  overdue  assessment  after  the  destruction  of  the 
insured  property  by  fire,  waives  forfeiture  and  con- 
tinues the  policy  in  force. 

The  testimony  of  a collector  of  assessments  was 
that  the  president  told  him  that  when  members  offer- 
ed to  pay  assessments  after  the  time  within  which 
they  were  to  be  paid  had  expired,  he  should  accept 
them,  was  insufficient  to  establish  a custom  to  accept 
payment  of  overdue  assessments.  The  custom  could 
not  be  extended  by  implication  to  authority  to  accept 
overdue  assessments  after  the  property  had  been 
destroyed  by  fire. 

The  absurdity  of  the  claim  that  a policy  con- 
tinues in  force  whether  assessments  are  paid  or  not 
is  well  illustrated  in  a case  against  a life  Insurance 
company  brought  at  Des  Moines,  Iowa.  Suit  was 
brought  on  the  ground  that  when  a company  once 


170 


A HAND  BOOK 


issues  a policy  it  is  bound  to  pay  it  whether  prem- 
iums are  kept  up  or  not,  that  it  can  only  subtract  un- 
paid premiums  or  assessments.  The  idiocy  of  this 
claim  is  easily  demonstrated.  Suppose  that  it  were 
established,  the  man  who  pays  the  premiums  as  they 
fall  due  would  have  no  advantage  over  the  one  who 
did  not.  It  is  evident  that  all  payments  would  cease 
at  once  and  that  as  soon  as  the  funds  on  hand  were 
exhausted  the  company  would  pass  out  of  existence. 

DIFFICULTIES  DISAPPEAR. 

As  the  Mutuals  become  older  and  more  thorough- 
ly organized  and  the  policy  holders  become  more 
familiar  with  the  system,  the  difficulties  connected 
with  the  assessment  system  will  disappear.  There  are 
many  companies  which  find  an  unpaid  assessment  a 
rarity.  The  policy  holders  understand  the  matter 
thoroughly  and  live  up  to  the  rules.  There  is  one 
objection  to  the  method  of  making  assessments  by 
mail,  the  cost.  Allowing  two  cents  for  postage,  two 
cents  for  stationary,  and  four  cents  for  clerk  hire, 
making  out,  mailing,  entering  on  the  books  and  postal 
card  reply,  and  three  cents  for  draft  for  the  remitter, 
and  two  cents  for  postage  and  one  cent  for  station- 
ery, the  total  cost  of  each  assessment  to  each  policy 
holder  is  fourteen  cents.  All  this  is  saved  by  the 
cash  in  advance  plan.  And  this  plan  is  growing  in 
favor.  It  has  been  in  use  for  many  years  and  is 
cheap  and  safe  where  the  business  extends  over  a 
large  territory.  Each  locality,  however,  must  be  a 
law  unto  itself,  and  with  its  decisions  no  one  outside 
should  interfere. 


CHAPTER  X. 


ASSETS,  RESERVES  AND  SURPLUS. 

These  are  treated  in  the  same  chapter  for  the 
reason  that  they  are  so  often  used  as  having  the  same 
signification.  Ordinarily  assets  include  all  that  the 
company  has  on  hand,  the  reserve  is  what  has  been 
set  aside  for  future  needs  and  the  surplus  is  what  re- 
mains after  all  the  demands  have  been  provided  for. 
But  in  Insurance  affairs,  even  in  legislative  enact- 
ments, these  words  are  frequently  used  for  each  oth- 
er, and  the  result  is  a serious  lack  of  precision  in  ex- 
pression. 

SHOULD  A MUTUAL  HAVE  ASSETS. 

The  first  question  to  be  discussed  is  whether  a 
Mutual  should  have  any  assets  beyond  the  contin- 
gent liabilities  of  the  members  and  a few  dollars  in 
cash  necessary  to  pay  the  running  expenses.  There 
is  a large  class  who  hold  the  negative  side  of  the 
question  and  they  go  so  far  as  to  say  that  no  prem- 
ium notes  should  be  taken,  nor  should  any  assess- 
ments be  made  for  an  amount  in  the  least  exceeding 
losses  and  expenses  actually  accrued.  Those  who 
hold  this  view  point  to  the  hundreds  of  old  estab- 
lished and  successful  Mutuals  which  carry  out  the 
theory  to  the  letter  and  claim  that  they  furnish  com- 
plete proof  of  the  correctness  of  their  position. 

—171 


172 


A HAND  BOOK 


LOCALITIES  DIFFER. 

Yet  there  are  localities  where  this  plan  will  not 
succeed.  It  requires  a high  standard  of  education 
and  of  business  honor  to  successfully  conduct  such 
Mutuals.  The  policy  holders  must  be  “selected 
risks,  ’ ’ must  understand  that  indemnity,  even  though 
invisible  and  intangible,  is  an  actuality  and  has  a 
value,  and  they  must  he  able  to  see  that  they  have 
had  an  indemnity  even  though  they  have  had  no  loss. 
They  must  also  he  able  to  understand  that  while  in 
the  long  run  the  cost  of  Insurance  will  be  very  close 
to  a certain  average,  it  may  vary  very  widely  in  any 
particular  period  or  from  year  to  year.  A Mutual 
may  run  one,  two  or  even  more  years  without  an  as- 
sessment and  then  have  several  large  losses  at  once. 
Such  Mutuals  as  those  which  have  been  described 
would  have  no  trouble  hut  there  are  localities  where 
such  an  occurrence  would  probably  wreck  the  com- 
pany. 


ERRONEOUS  VIEWS. 

There  are  men  who  regard  insuring  in  the  same 
light  as  betting.  They  entirely  fail  to  grasp  the  in- 
demnity idea.  Should  such  a man  insure  in  a Mutual 
which  only  assesses  to  pay  liabilities  for  past  losses, 
and  should  an  assessment  be  made  at  the  end  of  the 
year,  he  would  say,  “I  do  not  owe  the  company  any- 
thing. I have  had  no  loss,  I have  received  nothing 
from  them  and  am  not  in  any  way  obligated  to 
them.  * ’ He  would  refuse  to  pay  and  it  would  take  a 
lawsuit  to  collect  the  assessment. 


OF  MUTUAL  INSURANCE 


173 


There  are  others  who  have  equally  erroneous 
views  in  many  ways.  Time  will  educate  these,  but 
at  first  they  must  be  taken  as  they  are.  The  only 
way  to  do  business  with  them  is  to  demand  an  ad- 
vance assessment,  a membership  fee,  a policy  fee,  or 
some  other  advance  payment  which  shall  be  large 
enough  to  make  it  to  their  interest  to  remain  in  the 
company  and  pay  the  assessments  as  they  fall  due. 
Wherever  this  plan  is  adopted,  the  company  will 
have  assets  on  hand,  and  the  companies  which  use 
this  method  are  loud  in  their  praises,  many  claiming 
that  it  is  the  only  safe  way  to  do  business. 

THE  EASTERN  STATES. 

In  the  eastern  states,  and  especially  in  New  Eng- 
land, public  sentiment  is  strongly  in  favor  of  re- 
serves and  large  reserves  at  that.  There  is  statutory 
provision  for  the  accumulation  of  funds  in  many 
other  states.  The  Mutuals  are  conducted  on  almost 
every  imaginable  plan.  Some  assess  after  a loss, 
some  in  advance  and  others  take  premium  notes. 
Some  collect  no  more  than  is  actually  needed,  others 
take  old  line  rates  and  return  the  surplus  over  losses 
and  expenses  in  dividends.  All  are  furnishing  In- 
surance very  cheaply,  all  are  successful,  and  they 
have  had  a material  influence  in  forcing  down  rates 
in  their  localities.  And  every  one  of  these  Mutuals 
thinks  that  its  plan  is  the  true  one. 

Out  of  all  this  conflict  of  evidence  one  thing  ap- 
pears clearly,  that  these  companies  are  all  furnish- 
ing Insurance  at  low  cost,  are  satisfactory  to  their 


174 


A HAND  BOOK 


members  and  are  gaining  rapidly  in  business.  Hence 
it  is  not  just  nor  reasonable  to  make  the  charge  that 
the  use  of  a surplus  or  a reserve  is  drifting  toward  a 
joint  stock  organization,  nor  can  any  company  say 
that  its  way  is  the  only  way. 

There  are  other  reasons  why  a reserve  is  desir- 
able. The  fire  waste  of  the  country,  while  tolerably 
constant  in  long  terms  of  years,  varies  considerably 
from  year  to  year.  Conflagration  periods  occur  and 
these  require  burdensome  assessments.  During  the 
year  1904  there  were  terrible  windstorms  in  many 
states.  In  one  locality  a single  company  had  sixty 
losses  in  one  county.  This  would  have  required  a 
very  heavy  assessment.  Fortunately  the  company 
had  a reserve.  The  usual  assessment  was  made,  the 
balance  drawn  from  the  reserve,  the  losses  were  paid 
promptly  and  the  reserve  was  made  good  shortly  aft- 
er. In  this  case  the  reserve  was  beneficial  in  two 
ways,  it  prevented  a burdensome  assessment,  and  it 
assisted  in  making  prompt  payment. 

LOAN  COMPANIES  DEMAND  RESERVES. 

Many  loan  companies  require  that  the  Insurance 
policy  be  assigned  to  them  as  further  security  be- 
sides the  mortgage.  When  the  Insurance  company 
has  no  surplus  or  reserve,  these  loan  companies 
would  be  obliged  before  accepting  the  policy  to 
make  a thorough  investigation  of  the  affairs 
of  the  company,  unless  with  a very  old,  large  and 
well  estblished  institution.  This,  of  course,  is  not 
practicable.  Hence  loan  companies  are  obliged  in 


OF  MUTUAL  INSURANCE 


175 


most  instances  to  decline  such  policies,  and  borrow- 
ers who  would  prefer  Mutual  Insurance  are  compell- 
ed to  accept  some  other.  But  if  the  Mutual  has  a 
reserve,  the  case  is  different.  There  is  something 
visible  and  tangible  and  the  policy  is  good  security. 
It  is  sometimes  hinted  that  the  loan  companies  are 
against  the  Mutuals.  This  is  not  always  correct. 
Loan  agents  are  after  their  fees  and  commission  and 
they  will  take  any  security  which  they  can  sell  to  in- 
vestors. If  a Mutual  has  established  its  reputation 
and  is  well  known  to  be  reliable,  they  will  take  its 
policies  without  hesitation. 

From  this  it  appears  that  reserves  have  a legiti- 
mate place  in  the  Mutual  system.  It  is  not  claimed 
that  all  companies  should  carry  reserves,  but  that 
those  who  find  it  advantageous  may  do  so  without 
forfeiting  their  right  to  be  considered  Mutuals. 

THE  TRUE  TEST. 

The  true  test  of  a Mutual  is  not  its  method  of 
book  keeping  or  collecting  assessments  or  of  manag- 
ing its  funds,  but  whether  it  furnishes  insurance  at 
practically  first  cost.  If  it  does  so,  it  is  a Mutual. 

As  Insurance  breaks  the  force  of  the  shock 
which  might  prove  disasterous  to  the  individual  by 
dividing  a loss  among  several  persons,  so  when  a 
conflagration  occurs  or  there  is  some  unusually 
heavy  loss  requiring  an  assessment  which  would 
prove  burdensome,  the  reserve  gives  relief  by  enab- 
ling the  company  to  divide  up  the  load  into  several 
smaller  ones  payable  at  different  times.  To  illus- 


176 


A HAND  BOOK 


trate,  suppose  a company  in  which  the  annual  assess- 
ment is  40  cents  on  each  $100  at  risk  has  a loss  which 
would  require  75  cents  on  the  $100.  To  call  for  this 
at  once  might  inconvenience  many  of  the  policy  hold- 
ers. But  with  a reserve  the  usual  assessment  can  be 
made  and  the  balance  taken  from  the  funds  on  hand. 
As  one  extreme  usually  follows  another,  there  will  be 
a period  of  somewhat  lighter  losses  and  during  that 
time  the  reserve  can  be  built  up  to  its  normal 
amount. 

The  question  is  raised  whether  it  is  right  to 
take  a portion  of  the  premiums  paid  in  to  build  up  a 
permanent  reserve.  There  will  be  many  who  con- 
tribute to  the  building  of  such  a reserve  who  may 
never  derive  any  benefit.  In  answer  to  this  it  may  be 
replied  that  the  whole  progress  of  society  is  in  just 
that  way.  The  roads,  public  buildings,  bridges,  etc., 
which  the  public  owns  today  were  paid  for  by  the 
generation  which  preceeded.  The  total  of  these 
foots  up  an  enormous  sum.  It  is  stated  that  in  Bos- 
ton the  public  property  is  about  four  thousand  dol- 
lars to  each  inhabitant,  so  that  the  newly  born  Bos- 
tonian is  heir  to  four  thousand  dollars  worth  of 
property  which  he  can  use  and  enjoy  but  which  he 
cannot  dispose  of  nor  take  away.  This  was  provided 
by  his  predecessors  and  he  in  his  turn  will  add  some- 
thing for  those  who  come  after  him.  The  same  is 
true  in  churches,  lodges,  etc.  The  earlier  members 
provide  for  those  who  are  to  follow.  Building  up  a 
reserve,  therefore,  infringes  upon  no  principle  of 
justice,  but  has  the  endorsement  of  society. 


ROGER  F.  UPHAM,  WORCESTER,  MASS. 

Mr.  Upham  is  a typical  New  Englander,  careful,  cautious 
straightforward,  thorough-going,  good  humored  and  genial.  He 
is  secretary  and  treasurer  of  the  Worcester  Mutual  Fire  Insur- 
ance Company  which  was  chartered  in  1823,  and  has  grown  to  he 
one  of  the  largest  and  strongest  companies  in  the  State.  But 
the  best  idea  of  Mr.  Upham  can  be  gained  from  his  splendid 
article  on  ’‘Mutual  Underwriting  in  Massachusetts,”  published 
elsewhere  in  this  volume. 


ALEXANDER  T.  STRANGE,  WALSHVILLE,  ILL. 

Mr.  Strange  was  a native  of  Georgia.  He  came  to  Illinois  in 
1867  and  Anally  settled  on  a farm.  He  was  active  in  the  organi- 
zation of  the  Hillsboro  Township  Mutual  Fire  and  the  Pana  Dis- 
trict Cyclone  Insurance  Companies,  and  has  been  secretary  of 
both  since  their  formation.  He  is  the  author  of  the  forms  of 
policy  record  and  the  card  system  of  records,  widely  used  by 
the  mutuals  of  the  United  States.  He  is  a member  of  the  Illi- 
nois Association  of  Mutual  Insurance  Companies,  holds  an  im- 
portant position  in  the  National  Association  and  has  been  for 
two  years  a delegate  to  the  Farmers'  National  Congress. 


OF  MUTUAL  INSURANCE 


177 


HOW  SHALL  A RESERVE  BE  BUILT  UP? 

How  shall  this  reserve  be  built  up?  Mainly  by 
setting  aside  a small  percentage  of  the  profits  or 
savings.  This  percentage  is  usually  so  small  that  the 
policy  holder  scarcely  knows  whether  he  is  paying 
it  or  not.  It  is  customary  to  charge  a small  percent- 
age extra  on  short  term  risks  and  this  may  also  be 
used  to  increase  the  reserve.  But  in  every  case  the 
reserve  is  of  very  slow  growth. 

Some  companies  do  not  admit  policy  holders  to 
participation  in  profits  till  after  a stated  period. 
One  Mutual  extends  this  term  of  probation  to  ten 
years.  Others  give  a portion  only  to  policy  holders 
whose  Insurance  runs  for  less  than  five  years,  the 
balance  being  turned  into  the  surplus  or  reserve. 

How  large  shall  a reserve  be  ? This  takes  in  the 
whole  question  of  assets,  surplus,  etc.  Suppose  the 
case  of  a Mutual  taking  premium  notes  with  an  ad- 
vance assessment  and  doing  some  short  time  busi- 
ness, but  generally  issuing  five-year  policies.  It  will 
have  on  hand  a mass  of  notes  of  which  something 
less  than  one  half  will  have  been  collected,  less  than 
one  half  since  premium  notes  are  rarely  paid  in  full, 
a portion  being  generally  returned  to  the  policy  hold- 
er as  profits.  It  will  also  have  a fund  on  hand,  an 
amount  of  cash  paid  in  on  assessments  and  on  short 
time  policies,  of  which  only  a portion  has  been 
earned  and  becomes  the  property  of  the  company, 
all  claims  first  having  been  paid.  It  may  also  have  a 
reserve  and  a surplus.  But  the  first  two  items  will 
compose  a large  part  of  its  holdings. 


178 


A HAND  BOOK 


Computing  the  premiums  and  other  expenses 
on  the  unexpired  Insurance,  the  aggregate  would  be 
somewhere  near  the  total  of  cash  and  uncollected 
notes  on  hand.  Should  it  fall  short  of  this,  the  com- 
pany is  unsound  and  should  either  levy  an  assessment 
or  in  some  way  provide  for  safety.  But  supposing 
the  company  to  be  safe,  the  total  of  cash  and  uncol- 
lected notes  should  more  than  equal  the  amount  due 
to  policy  holders  on  all  outstanding  risks  and  this 
excess  will  constitute  a surplus.  A portion  of  this 
surplus  can  be  carried  to  the  reserve  and  many  com- 
panies are  in  the  habit  of  thus  adding  to  the  reserve 
from  time  to  time,  their  assessments  depending  upon 
the  good  fortune  of  the  company  at  the  time. 

THE  ACTUAL  RATIO. 

The  actual  ratio  of  the  reserve  to  the  total 
amount  at  risk  is  estimated  differently  in  the  east 
and  in  the  west.  It  is  a matter  of  some  importance 
that  the  reserves  of  the  Mutuals  should  be  confined 
by  law  to  the  lowest  limit  consistent  with  safety. 

In  Massachussetts  the  limit  of  the  permanent 
fund,  as  the  reserve  is  called,  is  two  percent  on  the 
amount  of  the  total  amount  at  risk.  In  the  west  a 
much  smaller  figure  is  deemed  satisfactory,  less  than 
one  fifth  of  this  amount.  The  eastern  basis  is  made 
to  meet  the  competition  of  stock  companies.  The 
western  basis  is  the  average  annual  loss  and  fire 
waste  which  is  over  three  dollars  on  a thousand,  the 
limit  being  placed  at  four  dollars.  Thus  the  eastern 
company  with  ten  millions  at  risk  would  require  a 


OF  MUTUAL  INSURANCE 


179 


reserve  of  $200,000,  while  the  western  reserve  for  the 
same  risk  would  only  be  $40,000. 

The  total  assets  of  the  western  company  would 
be  its  premium  notes,  its  cash,  etc.  on  hand  and  its 
reserve  of  $40,000.  Its  liabilities  would  be  the  un- 
earned portion  of  its  notes  and  cash,  and  the  unpaid 
claims,  if  any.  Its  surplus  would  be  the  balance  af- 
ter its  liabilities  and  its  reserve  were  deducted  from 
its  assets.  If  too  large,  a dividend  should  be  made 
to  the  policy  holders  or  the  assessments  reduced. 

It  should  be  a maxim  in  all  insurance  enter- 
prises to  carry  a safe  amount  of  resources  on  hand, 
but  no  more.  Large  accumulations  of  wealth  tend 
to  extravagance,  to  say  nothing  worse.  Hence  the 
reserve  should  be  carefully  adjusted  to  the  actual 
requirements  and  no  useless  balance  should  be  toler- 
ated. 


HOW  INVESTED. 

The  reserves  of  Mutuals  should  be  invested  in 
first  class  loans  on  real  estate  security.  This  is  the 
best  investment  so  far  as  safety  in  concerned  and  has 
the  additional  advantage  that  it  has  no  tendency  to 
entangle  the  Mutual  with  other  corporations.  The 
holdings  of  the  life  Insurance  companies  of  the  Unit- 
ed States  are  two  billions  of  dollars.  A large  por- 
tion of  this  is  in  railroad  stocks  and  bonds.  Who 
can  tell  what  influence  this  fact  has  had  upon  the 
railroad  legislation  of  the  United  States?  For  the 
interest  of  these  companies  and  of  these  policy 
holders  lies  in  the  high  dividend  paying  power  of  the 


180 


A HAND  BOOK 


railroads.  But  the  interest  of  the  Mutual  which  has 
loaned  its  reserve  on  farm  mortgages  lies  with  the 
general  public  which  maintains  and  supports  it. 

The  reserve  also  helps  to  settle  another  question. 
There  has  been  much  discussion  over  the  liability  of 
members  of  Mutuals  in  case  of  loss.  So  long  as  all 
losses  are  to  be  paid  in  full  it  is  evident  that  assess- 
ments must  be  unlimited.  When  assessments  are  lim- 
ited, if  they  fall  short,  the  losses  must  be  pro  rated. 
Failure  to  recognize  this  principle  has  made  no  end 
of  trouble  with  companies  which  do  not  carry  a re- 
serve. Some  of  them  stipulated  in  their  policies  that 
the  loss  should  be  paid  in  full  and  the  assessments 
limited  to  a fixed  amount.  Heavy  losses  occured 
and  the  courts  held  that  the  first  stipulation  was 
binding  and  ordered  assessments  levied  accordingly. 

But  with  a reserve  on  hand  the  case  is  different 
if  only  the  payments  and  assessments  are  high 
enough  to  cover  the  average  fire  waste  for  a term  of 
years.  In  case  of  an  unusual  loss,  the  reserve  is 
drawn  upon,  the  policy  holder  gets  his  money  at  once 
and  the  assessment  is  kept  within  the  usual  limits. 

For  a full  account  of  the  New  England  reserve 
system,  the  reader  is  referred  to  Mr.  Roger  F.  Up- 
ham’s  magnificent  article  on  Mutual  Underwriting 
in  Massachusetts,  which  appears  in  this  volume. 

The  astonishing  exposures  of  old  line  methods 
among  life  Insurance  companies  of  the  east  raise  the 
question  whether  the  Mutual  fire  and  storm  Insur- 
ance companies  can  be  manipulated  in  the  same  way. 
A comparison  of  the  two  will  answer  the  question. 


OF  MUTUAL  INSURANCE 


181 


It  may  be  affirmed  that  with  all  their  crookedness 
the  great  life  companies  are  still  solvent,  death 
claims  will  he  paid  in  full  and  annuities  will  he  kept 
up.  Where  then  does  the  loss  come  in?  In  the  di- 
minution of  profits,  which,  according  to  the  contract, 
should  go  to  the  assured.  This  is  true  in  all  lines, 
fire  and  life. 


JUGGLING  WITH  FUNDS. 

To  understand  this,  it  is  necessary  to  have  some 
knowledge  of  the  workings  of  the  investment  depart- 
ments of  these  enormous  institutions.  Premiums 
must  be  held  till  they  are  earned,  and  in  order  to 
make  the  most  of  them  for  the  policy  holders  they 
must  be  invested  where  they  will  draw  interest.  The 
usual  rate  has  been  four  per  cent  on  the  average.  A 
combined  capital  and  surplus  of  four  hundred  mil- 
lions of  dollars  should  return  an  annual  interest  of 
sixteen  millions  of  dollars.  It  is  easy  to  see  that  a 
very  small  fluctuation  in  the  rate  will  make  but  little 
difference  to  each  member,  but  will  make  a very 
large  sum  in  the  aggregate.  It  is  upon  this  principle 
that  the  grafters  have  acted.  They  have  juggled 
with  stocks,  they  have  bought  and  sold  to  their  own 
advantage,  they  have  patronized  their  own  institu- 
tions to  the  detriment  of  the  Insurance  company  and 
have  thus  enriched  themselves  at  the  cost  of  the  pol- 
icy holders.  And  what  chance  has  an  individual 
member  to  investigate?  To  look  over  the  lists  of 
stocks,  to  investigate  its  values  would  be  the  work  of 
a year  for  him.  The  proposition  is  absurd. 


182 


A HAND  BOOK 


Now  take  the  Mutual  figures.  The  accumula- 
tions of  a century  and  a half  have,  in  the  old  Contri- 
butionship  only  barely  exceeded  one  per  cent  of  the 
enormous  figures  given  above.  Even  millionaire 
Mutual  fire  companies  are  exceedingly  scarce,  while 
generally  speaking  a Mutual  fire,  which  has  on  hand 
a hundred  thousand  dollars,  is  looked  upon  as  ex- 
ceedingly prosperous.  The  opportunities  for  graft- 
ing sink  into  comparative  insignificance.  They  are 
less  than  the  “trace”  in  the  weather  report. 

The  modern  grafter  is  shrewd.  He  steals  indi- 
rectly and  in  small  amounts.  He  plunders  large  in- 
stitutions and  big  cities,  where  his  pilferings  will  not 
be  missed.  The  small  incomes  of  the  Mutuals  do  not 
furnish  fields  large  enough  for  him  to  operate  in. 
Very  little  grafting  can  be  done  where  the  total  in- 
come from  investments  is  only  a few  thousand  dol- 
lars each  year. 

MUTUAL  RESERVES  ARE  SAFE. 

The  modest  resources  of  the  Mutuals  are  entire- 
ly different  from  the  great  accumulations  of  the  joint 
stock  companies.  They  are  working  balances,  small 
amounts  kept  on  hand  to  prevent  the  company  from 
running  out  of  money  in  case  of  unexpected  increase 
of  expenses,  or  of  falling  off  of  income.  When  a suf- 
ficient amount  is  secured  the  accumulation  ceases. 
But  the  joint  stock  company  has  no  limit,  it  goes  on 
forever. 

Again,  the  small  reserves  of  the  Mutuals  are 
more  easily  invested  and  looked  after.  Some  large 
joint  stock  life  companies  have  more  than  two  hun- 


OF  MUTUAL  INSURANCE 


183 


dred  and  fifty  lines  of  investment,  stocks  and  bonds 
of  every  imaginable  kind  and  scattered  all  over  the 
world.  How  many  men  are  there  who  can  appraise 
these  anywhere  near  correctly.  On  the  other  hand, 
there  is  scarcely  a farmer  who  cannot,  in  a few 
hours,  examine  and  appraise  the  real  estate  mort- 
gages in  which  the  reserves  of  the  Mutuals  are  in- 
vested. There  is  no  chance  for  fraud  in  these  meth- 
ods, the  very  figures  themselves  settle  that  question. 
There  is  no  room  for  the  grafter,  no  place  where  he 
can  hide,  and  no  member  who  is  not  able  to  detect 
him. 


CHAPTER  XI 


ADJUSTERS  AND  ADJUSTMENTS. 

The  agent  and  the  adjuster  are  field  officers  upon 
whom  the  reputation  and  success  of  the  company 
largely  depends.  With  them  the  people  come  in  con- 
tact and  by  what  they  do  or  leave  undone  the  people 
will  form  their  judgments. 

SPECIAL  QUALIFICATIONS. 

An  adjuster  has  a difficult  task  and  needs  special 
qualifications.  He  must  above  all  be  a man  of  integ- 
rity, not  merely  honest  as  the  world  goes,  excusing 
wrong  by  pleading  mercantile  custom,  but  deter- 
mined to  do  equal  and  exact  justice  everywhere  and 
on  all  occasions.  Such  integrity  is  not  a manufac- 
tured article  gotten  up  for  the  occasion.  It  is  the 
outgrowth  of  a correct  life.  It  is  a habit  as  well  as 
a sentiment,  a part  of  the  personality,  an  element  of 
the  character. 

In  his  own  line  the  adjuster  will  make  practical 
application  of  his  principles  by  awarding  everyone 
who  has  suffered  a loss  the  amount  of  indemnity  due 
him,  no  more,  no  less.  The  idea  of  taking  advantage 
of  technicalities  to  enable  the  company  to  escape  its 
obligations  in  whole  or  in  part,  will  receive  no  tolera- 
tion from  him.  His  very  manner,  his  bearing,  his 

184— 


OP  MUTUAL  INSURANCE 


185 


methods,  should  impress  upon  the  loser  the  convic- 
tion that  justice  will  be  done,  that  he  will  receive  all 
the  indemnity  for  which  he  has  paid. 

In  case  of  attempted  fraud  these  characteristics 
will  be  useful.  The  man  who  always  does  exactly 
what  is  right  is  the  man  who  generally  avoids  falling 
into  traps  set  by  those  who  would  take  advantage  of 
him,  and  he  is  also  the  man  whom  dishonest  persons 
fear  to  approach. 

The  adjuster  should  also  possess  a good  share  of 
common  sense  and  it  should  not  be  an  unused  talent. 
Pure  integrity  with  no  other  good  qualities  is  of  little 
value,  it  is  too  easily  imposed  upon.  Zeal  without 
knowledge  is  a dangerous  thing.  The  adjuster  will 
deal  with  many  cases  which  call  for  good  judgment 
and  careful  discrimination.  Without  good  sense  and 
sound  discretion  he  may  blunder  most  woefully.  He 
should  also  know  how  to  be  firm  without  being  obsti- 
nate and  how  to  disagree  without  being  contrary. 

TRAINING  REQUIRED. 

These  may  be  termed  the  mental  qualifications, 
the  elements  which  go  to  make  up  his  personal  char- 
acter. In  addition  he  should  have  some  training  in 
his  own  line.  He  should  know  something  about  In- 
surance law  and  practice.  He  should  understand 
policies,  and  should  possess  information  enough 
about  estoppel  and  waiver  to  avoid  getting  his  com- 
pany into  trouble. 

He  should  be  able  to  think  quickly  and  to  see  the 
bearing  and  effect  of  every  word  of  his  own  and  of 
the  insured,  and  should  never  permit  himself  to  be 


186 


A HAND  BOOK 


provoked  into  using  hasty  utterances.  He  should 
also  understand  modern  business  methods,  in  fact 
he  should  he  an  all-around  business  man. 

Among  the  special  equipments  for  his  position, 
should  be  a thorough  knowledge  of  the  value  of  prop- 
erty which  he  will  be  likely  to  be  called  on  to  ap- 
praise. Should  a loss  occur  in  a line  with  which  he 
is  not  familiar,  he  should  thoroughly  inform  himself 
before  undertaking  the  adjustment.  This  is  the  only 
safe  method. 

SHOULD  NEVER  DO  WRONG. 

The  adjuster  should  never  lose  sight  of  the  fact 
that  he  is  in  business  for  the  purpose  of  carrying  out 
a fair  and  honorable  contract,  and  that  attempting 
to  evade  any  obligation  imposed  by  that  contract  is 
an  attempt  to  defraud,  is  dishonest  and  disreputable. 
No  matter  with  whom  he  is  dealing,  no  matter  what 
the  provocation  may  be,  the  adjuster  should  never 
resort  to  any  course  which  is  not  in  itself  absolutely 
free  from  wrong.  It  is  true  that  there  are  some  who 
say  that  in  dealing  with  a dishonest  man  he  must  be 
met  on  his  own  ground,  and  that  they  must 4 4 fight  the 
devil  with  fire,”  but  all  this  is  the  cheapest  kind  of 
sophistry.  One  man’s  fraud  does  not  excuse  an- 
other ’s,  even  if  proven,  much  less  when  such  fraud  is 
only  suspected.  And  if  such  fraud  on  the  part  of 
the  adjuster  be  detected,  it  will  only  make  his  case 
so  much  the  worse. 


OF  MUTUAL  INSURANCE 


187 


A BAD  CASE. 

In  the  New  York  Independent  of  Sept.  29,  1904, 
appears  the  following,  among  several  similar  state- 
ments in  other  lines.  The  editor  of  the  Independent 
vouches  for  its  truth,  but  for  obvious  reasons  sup- 
presses all  names.  Several  business  men  were  giv- 
ing their  experience.  One  of  them  said : 

“I’m  an  Insurance  adjuster,  and  you  would  not 
think  that  I ever  had  to  use  money,  but  I do.  On  the 
small  losses  and  losses  in  the  country  there  is  never 
any  trouble,  though  we  often  have  to  pay  far  more 
than  the  value  of  the  goods  burned.  To  these  losses 
I do  not  attend,  but  only  see  to  the  big  ones  in  the 
large  cities  where  the  loss  will  amount  to  hundreds 
of  thousands  of  dollars  and  occasionally  millions. 
They  usually  get  one  of  those  firms  of  adjusters— I 
work  for  the  companies— to  manage  their  interests. 
If  I only  had  the  principals  to  deal  with,  it  would  be 
an  easy  matter.  It  would  take  time,  because  the 
owners  naturally  think  their  property  worth  more 
than  it  really  is,  but  tact  and  management  will  usual- 
ly pull  the  toughest  matter  through.  But  when  one 
of  those  infernal  Jew  or  Yankee  adjusters  gets  hold 
of  a big  loss  and  ties  up  the  owners  with  a contract 
to  do  all  the  business  through  him,  there  is  only  one 
thing  to  do,  and  that  is  to  buy  the  adjuster.  Why, 

in  that  big  fire  of  the hotel  there  was  only 

a partial  loss  and  we  hitched  and  pulled  how  much  it 
should  be  for  three  weary  weeks.  That  adjuster 
would  not  come  into  the  open  and  say  how  much  he 
wanted.  If  he  had,  I would  have  gone  straight  to  the 


188 


A HAND  BOOK 


old  man  and  then  we  would  have  had  a row.  I did 
suggest  to  the  owner  one  day  that  the  adjuster  was 
crooked  and  found  for  my  pains  that  the  adjuster 
had  informed  him  that  I wanted  a bribe.  Well,  it 
went  on  and  on,  and  one  day  I said  to  that  adjuster 
that  if  he’d  settle  for  $250,000— they  wanted  $350,000 
—I’d  leave  an  envelope  for  him  at  the  hotel  in  the 
morning.  He  was  shrewd  and  replied:  ‘You  leave 
the  envelope  and  I’ll  see.’  So  next  morning  I left 
an  envelope  with  two  thousand  dollar  bills  in  it.  He 
met  me  with  a smile  and  said,  ‘ Oh,  why  leave  so  small 
an  envelope;  leave  a larger  one.’  I had  to  leave 
three  envelopes  containing  $15,000  before  he  came 
down  and  I positively  refused  to  leave  any  more  and 
said  that  it  could  go  to  the  courts.  Then  we  settled 
for  $260,000  and  a few  odd  dollars.  The  amount 
over  $250,000  was  put  on  to  ‘save  my  friend’s  face,’ 
as  the  Chinese  say.  But  this  was  really  a saving  to 
the  companies  as  they  had  planned  to  come  up  to 
$300,000  if  necessary.  It  always  hurts  an  Insurance 
company  to  let  anything  go  into  the  courts.  Some 
months  afterward  I accidentally  found  out  that  the 
adjuster  had  gotten  over  $10,000  from  the  old  man 
as  a bribe  on  me.  ’ ’ 


THE  EVIL  RESULTS. 

It  would  seem  at  first  sight,  as  if  the  adjuster 
who  related  the  story  had  saved  his  company  nearly 
$40,000.  But  he  has  simply  shown  that  there  was 
little  or  no  attempt  to  arrive  at  an  exact  estimate  of 
the  loss,  hut  on  the  contrary  that  the  company  only 


OF  MUTUAL  INSURANCE 


189 


cared  to  get  oft  as  cheaply  as  it  could,  and  he  has 
advertised  himself  as  a blackmailer.  It  would  have 
been  far  better  to  have  made  a fair  and  reasonable 
adjustment  and  then  taken  the  matter  to  the  courts 
if  necessary,  than  to  have  settled  it  by  bribery. 

It  is  said  that  it  hurts  a company  to  get  into 
courts.  But  the  hurt  comes  from  the  reputation  al- 
ready gained  by  such  transactions  as  the  one  above 
quoted.  Public  sentiment  never  turns  against  a man 
or  a corporation  for  resisting  a fraud.  It  is  only 
when  the  reputation  becomes  shady  that  a person  is 
liable  to  be  suspected  of  using  the  courts  to  avoid 
his  just  obligations.  This  whole  affair  and  every 
party  to  it  reeks  of  dishonesty. 

MUST  NOT  RESORT  TO  TRICKS. 

Nor  should  the  adjuster  try  to  set  traps  for  the 
loser  till  it  develops  that  there  is  a necessity  for  it. 
He  is  entitled  to  a full  and  fair  statement  of  the 
amount  of  loss  and  to  all  explanations  necessary  to 
enable  him  to  arrive  at  the  actual  facts.  But  he  has 
no  right  to  induce  the  loser  to  sign  agreements  which 
he  does' not  understand,  and  then  to  take  advantage 
of  him.  What  is  wanted  is  fair  dealing  between  man 
and  man.  The  adjuster  can  generally  tell  at  once 
what  kind  of  a man  he  is  dealing  with.  If  he  meets 
with  an  honest  man  there  will  be  no  trouble.  The 
tricks  of  the  incendiary  or  of  the  over  insurer  will 
generally  come  to  light. 

There  is,  in  Insurance  circles,  a general  senti- 
ment that  losses  are  paid  too  high.  On  the  outside, 
the  opinion  is  the  other  way.  It  is  probably  true  that 


190 


A HAND  BOOK 


the  average  sufferer  usually  over  estimates  his  loss 
and  also  that  he  sometimes  puts  a sentimental  value 
on  property  destroyed.  But  the  cool,  quiet  and  care- 
ful adjuster  can  avoid  trouble.  He  can  very  easily 
get  at  the  cash  value  of  the  loss,  and  when  the  loser 
is  a fair  minded  man  he  will  not  be  long  in  making  up 
his  mind  that  he  is  not  entitled  to  more. 

SOME  PROBLEMS. 

In  the  case  of  farm  or  town  dwellings,  churches, 
school  houses  and  similar  buildings,  there  is  not 
much  trouble  in  arriving  at  the  amount  of  the  loss. 
Sometimes  it  requires  effort  to  arrive  at  a fair  ap- 
praisal of  the  contents,  but  patience  will  generally 
accomplish  it.  In  the  case  of  other  farm  buildings, 
especially  those  which  have  been  erected  for  some 
years,  there  may  be  a wide  difference  between  the 
claimant  and  the  adjuster  and  it  will  require  skill 
and  tact  to  arrive  at  a satisfactory  agreement.  Pecul- 
iar problems  present  themselves.  A granary  or  corn 
crib  burns,  the  walls  are  gone  and  the  grain  or  corn 
has  spread  out  over  the  ground.  How  shall  it  be 
measured?  How  shall  the  adjuster  estimate  the 
weight  of  the  hay  consumed  in  the  barn  which  was 
destroyed?  But  these  problems  are  simple  com- 
pared with  the  questions  which  arise  when  stores  or 
large  establishments  burn. 

COUNTRY  STORES. 

Generally  when  a country  store  burns  the  books 
go  with  it  and  there  is  nothing  to  do  but  to  start  with 
the  amount  of  the  last  annual  invoice  which  will 


OF  MUTUAL  INSURANCE 


191 


probably  be  remembered,  then  add  the  purchases  as 
they  can  be  called  to  mind,  compute  the  sales,  using 
the  bank  account,  the  remittances  and  expenses  as 
aids  in  the  process,  and  reducing  this  amount  by  a 
fair  estimate  for  profits.  The  balance  will  be  the 
net  sales  which,  taken  from  the  sum  of  the  invoice 
and  purchases,  will  leave  the  net  stock.  Due  allow- 
ance must  also  be  made  for  freight  on  the  one  hand, 
and  depreciation  on  the  other.  The  final  result  will 
be  somewhere  near  the  true  amount. 

In  the  case  of  large  establishments  this  process 
becomes  extremely  complicated.  As  concurrent 
Insurance  is  usually  carried  in  such  cases  another 
problem  arises,  how  shall  the  loss  be  divided?  Some- 
times this  is  not  easy  to  decide. 

Where  there  is  a desire  for  fair  dealing  on  both 
sides  all  these  matters  can  finally  be  brought  to  an 
acceptable  conclusion.  It  is  better  that  the  adjuster 
should  yield  a trifle  than  that  the  case  should  go  to 
appraisers  or  arbitrators.  This  course  will  make 
friends  for  the  company  and  in  the  long  run  will 
pay  best. 


FAIR  PLAY  AND  THOROUGH  WORK. 

The  adjuster  should  avoid  all  prejudice  and  all 
premature  judgment.  He  should  go  out  with  two 
objects  in  view,  fair  play  and  thorough  examination 
and  with  absolutely  no  bias  in  favor  of  either  party. 
His  work  should  be  thorough  and  in  detail,  every 
item  being  carefully  considered.  Losses  may  be 
honest  and  the  policy  holder  may  be  sincere  in  his 
claim,  and  yet  thorough  investigation  may  show  to 


192 


A HAND  BOOK 


the  satisfaction  of  both  parties  that  the  damage  is 
really  much  less  than  it  appeared  at  first  sight.  The 
case  of  a large  mill  has  been  cited.  The  warehouse 
attached  was  burned  and  the  cotton  stored  there  was 
supposed  to  be  a total  loss.  But  digging  down  among 
the  debris  of  the  fallen  building  it  was  discovered 
that  there  was  a large  amount  of  unconsumed  mater- 
ial. The  value  of  this  was  saved  to  the  company.  In 
every  large  city  there  are  men  who  make  a business 
of  dealing  with  buildings  which  must  be  torn  down, 
the  salvage  from  fires  or  wrecks,  etc.,  and  the  amount 
they  save  to  the  Insurance  companies  is  very  large. 

A DISHONEST  ADJUSTER. 

The  following  case  illustrates  what  an  adjuster 
should  not  do.  A farmer  lost  a fine  house  by  fire  on 
which  there  was  an  Insurance  of  $1,600,  the  actual 
value  of  the  house  being  about  $1,800.  The  company 
was  notified,  the  adjuster  arrived,  called  for  the 
policy,  looked  it  over  and  with  pitying  smile  turned 
to  the  loser,  “My  friend,  I am  sorry  to  say  that  your 
policy  is  worthless,  but  the  company  will  be  liberal, 
they  will  donate  you  back  your  premiums  and  a lit- 
tle more.  They  will  give  you  a hundred  dollars. 
Now  you  just  sign  this  receipt.’ ’ But  the  farmer 
said  he  would  wait  till  next  day. 

He  consulted  a friend  who  told  him  to  demand 
the  full  amount.  He  did  so.  Then  the  adjuster 
wanted  an  arbitration.  This  he  had  waived,  but  they 
figured  with  him  a little  and  then  told  him  he  could 


OF  MUTUAL  INSURANCE 


193 


pay  in  full  or  go  into  court.  The  claim  was  allowed 
and  the  $1,600  paid,  but  the  company  lost  all  its  busi- 
ness in  that  locality. 

ACTUAL  EXPERIENCE. 

Mr.  Bridgens,  an  Insurance  adjuster  of  long  ex- 
perience, furnishes  the  following:  “The  greater 
number  of  patrons  of  the  company  for  which  I work 
are  men  who  wish  to  do  the  fair  thing,  and  with 
whom  it  is  a pleasure  to  do  business.  Now  and  then 
I meet  a man  who  seems  to  think  that  an  Insurance 
company  exists  for  no  other  purpose  than  to  be 
robbed  and  he  tries  to  do  the  robbing  act  to  the  best 
of  his  ability. 

“For  example,  a man  owns  a poorly  built  barn 
on  which  he  has  succeeded  in  getting  Insurance.  The 
wind  loosens  some  of  the  braces  or  perhaps  there 
never  were  any  and  he  reports  some  trifling  damage 
and  is  told  to  repair  it.  In  doing  so,  he  puts  in  2x8 
braces,  when  there  were  originally  1x4,  or  perhaps 
none  at  all,  and  does  all  the  other  work  in  the  same 
manner  and  thus  runs  up  a bill  of  $70  or  $80  for  re- 
pairing damages  for  which  the  company,  in  strict 
justice,  should  not  be  held. 

‘ ‘ Sometimes  I get  a notice  that  a roof  has  been 
blown  oft.  Arriving  at  the  place  I find  that  a few 
shingles  have  been  stripped  off.  That  house  does 
not  get  a new  roof  at  the  company’s  expense. 

“I  remember  another  case  where  it  was  not  the 
roof  but  a foundation  blown  away.  The  building  was 

a school  house,  and  damages  were  claimed  for  a 
12 


194 


A HAND  BOOK 


large  hole  in  the  foundation  said  to  he  caused  by  a 
wind.  I went  to  the  place  and  rode  out  with  a boy 
about  twelve  years  old  to  show  me  where  his  father, 
one  of  the  directors,  was  at  work.  On  the  way  the 
boy  told  me  how  the  larger  boys  had  taken  the  wall 
out  to  catch  rabbits.  I asked  him  if  the  wind  had  not 
done  the  damage  and  he  said  no,  that  the  boys  had 
taken  the  wall  out.  This  wall  was  twenty  feet  by 
thirty  and  twelve  inches  high,  sloping  back  to  six 
inches.  They  had  presented  a bill  for  $40.  One  man 
would  have  laid  it  all  in  one  day.  I objected  to  pay- 
ing $40  for  damages  done  by  the  boys.  They  got 
angry  and  said  the  other  company  had  paid  the  $40 
without  ever  coming  to  see  it.  This  was  the  first  I 
knew  of  their  having  double  Insurance.  Of  course 
I expressed  my  opinion  of  them  and  told  them  they 
ought  to  be  behind  the  bars  for  such  work. 

“In  another  case  a man  in  mercantile  business 
owned  a farm  and  had  insured  a barn  against  fire 
and  wind.  The  barn  blew  down  and  I went  to  settle 
with  him.  I could  not  reach  any  agreement  as  he 
claimed  he  had  paid  a premium  for  fire  Insurance  as 
well  as  windstorm  and  he  wanted  full  pay  for  both. 
I spent  a whole  day  with  him  and  finally  had  to  take 
him  to  a lawyer  before  I could  convince  him  that  we 
were  only  liable  for  the  wind  loss. 

‘ 1 A kitchen  addition  was  burned  and  the  owner 
had  rebuilt  it.  The  bricks  in  the  chimney  were  new. 
The  husband  was  away  and  I remarked  to  the  wife 
that  it  was  singular  that  the  old  brick  had  all  burned 


OF  MUTUAL  INSURANCE 


195 


up  without  leaving  a trace,  when  she  blurted  out  ‘I 
told  Jim  that  the  company  would  never  pay  for  that 
new  chimney.  ’ 

“ These  are  some  of  the  unpleasant  matters  an 
adjuster  meets  but  I am  thankful  that  they  are  few 
and  far  between.  I always  recommend  that  such 
risks  be  settled  and  cancelled  out.  The  company  is 
better  off  without  them. 

“Sometimes  an  adjuster  sees  queer  things.  I 
was  called  on  to  adjust  a small  loss  by  windstorm. 
Desiring  to  inspect  the  under  side  of  the  roof,  I 
climbed  into  the  attic  and  there  found  a piece  of 
board  and  a lot  of  cobs  piled  against  the  stove  pipe 
which  came  up  through  the  ceiling.  I went  down, 
settled  the  loss,  and  then  told  the  man,  ‘Your  policy 
is  cancelled  and  this  business  is  over.’  He  had  evi- 
dently intended  to  burn  the  house  and  had  he  not 
claimed  the  windstorm  loss  his  plot  would  not  have 
been  discovered. ’ ’ 

But  usually  the  life  of  an  adjuster  is  pleasant. 
Our  Mutual  men  are  generally  fair.  Of  course  when 
a man  has  a partial  loss  he  is  apt  to  over  estimate  it. 
It  generally  looks  worse  than  it  is.  But  when  he  is 
told  to  repair  it,  to  make  it  as  good  as  it  was,  and 
bring  in  the  bills,  he  is  almost  invariably  well  pleased 
and  he  and  the  adjuster  always  part  good  friends. 

A COMMON  CASE. 

Another  actual  case  will  illustrate  a very  com- 
mon occurence.  A gasoline  stove  took  fire  in  a resi- 
dence of  a widow.  That  stove  was  thrown  out  and 
the  blaze  extinguished  but  everything  in  the  room 


196 


A HAND  BOOK 


was  smoked  and  scorched,  the  plaster  was  cracked, 
the  wainscoting  blistered,  a valuable  hardwood  ward- 
robe badly  injured  by  the  blaze  and  sundry  other 
damages  had  occured.  It  was  sometime  after  the 
fire  when  the  adjuster  arrived,  and  meantime  sympa- 
thizing neighbors  had  worked  up  the  good  lady’s 
ideas  of  her  damage  to  a pretty  high  figure.  The 
adjuster  talked  with  her  a few  moments  in  a sym- 
pathizing way,  assured  her  that  the  company  would 
replace  everything  as  good  as  it  was  and  that  she 
need  have  no  fear  of  the  outcome.  He  explained  to 
her  that  the  company  was  a Mutual,  that  her  neigh- 
bors were  paying  part  of  the  loss  and  that  they  were 
all  interested  in  fair  play. 

Still  the  woman  was  somewhat  worried  and  anx- 
ious. So  the  adjuster  started  at  his  work.  He  began 
with  the  plastering.  He  measured  the  number  of 
yards,  computed  the  cost  of  taking  off  the  old  and 
putting  on  the  new.  Then  he  measured  the  wainscot 
and  computed  the  cost  of  replacing  that.  Next  he 
came  to  the  wardrobe  which  was  really  a fine  piece  of 
furniture  and  was  highly  prized  as  a family  relic. 
It  was  so  scorched  and  blistered  that  it  appeared  al- 
most worthless.  But  the  adjuster  soon  saw  that  only 
the  surface  was  injured  and  he  turned  to  the  lady 
and  said,  ‘ ‘ Madam,  I am  glad  to  tell  you  that  this  can 
be  made  as  good  as  new.  It  is  really  a beautiful  and 
expensive  piece  of  furniture  and  you  must  esteem  it 
highly.  We  will  pay  for  having  the  surface  planed 
and  polished  and  for  having  it  finished  up  so  that 
you  cannot  tell  it  from  new.  ’ ’ This  was  satisfactory. 


OF  MUTUAL  INSURANCE 


197 


Then  he  took  up  other  matters.  The  gasoline 
stove  that  caused  all  the  trouble  and  was  standing  out 
of  doors  came  next.  How  much  was  it  worth  when 
the  fire  took  place?  It  had  cost  thirty-five  dollars 
and  had  been  in  use  eight  years.  She  thought  she 
ought  to  have  somewhere  near  what  it  cost.  The  ad- 
juster demurred  and  asked  her  if  the  stove  was  re- 
paired, as  good  as  it  was  before  the  fire,  whether  she 
would  use  it  again.  She  replied  at  once  that  she 
would  not  have  the  thing  in  the  house.  The  next 
question  was  how  much  she  was  damaged  by  the  loss 
of  a thing  she  would  not  use.  She  saw  the  point  at 
once.  The  adjuster  then  said,  “The  average  life  of 
a gasoline  stove  is  ten  years.  You  paid  thirty-five 
dollars  for  this,  that  is  three  dollars  and  a half  for 
each  year.  You  have  used  it  eight  years,  leaving  two 
years  in  which  it  might  answer.  Now  the  cost  of  the 
stove  for  these  two  years  is  seven  dollars.  Is  that 
not  a fair  allowance  for  the  stove  ? ’ ’ She  was  satis- 
fied. 


THE  SQUARE  DEAL  WON. 

A few  other  articles  were  disposed  of  in  the 
same  way,  two  or  three  claims  for  blemishes  on  small 
articles  to  which  no  real  damage  was  done  were  with- 
drawn and  the  sum  footed  up.  The  adjuster  then 
said,  ‘ ‘ Madam,  we  will  do  this  work  for  you  and  put 
everything  in  good  shape,  or  if  you  prefer  to  do  the 
work  yourself  we  will  pay  you  this  amount  in  full. ’ 1 
The  lady  hesitated  a moment,  then  turned  to  her 
sons  who  were  standing  by  and  said,  “I  think  we 
shall  take  the  money.  ’ 9 They  agreed  at  once,  saying 


198 


A HAND  BOOK 


that  they  could  do  much  of  the  work  themselves.  The 
money  was  paid  and  the  case  settled  to  the  full  satis- 
faction of  the  family  for  less  than  a third  of  the  orig- 
inal claim. 

A stupid  or  an  obstinate  adjuster  would  have 
found  in  this  case  a magnificent  opportunity  to  make 
trouble.  He  could  have  precipitated  a quarrel  at 
once.  Then  there  would  have  been  a neighborhood 
uproar,  and  in  all  probability,  a lot  of  cancelled  poli- 
cies. But  when  the  woman  and  her  sons  saw  the  loss 
was  to  be  made  good  they  became  easy  to  deal  with 
at  once  and  the  whole  community  also  was  satisfied 
that  the  widow  had  been  fairly  dealt  with. 

THE  COST  OF  BUILDINGS. 

There  are  three  methods  of  estimating  the  cost 
of  buildings.  They  are,  at  best,  approximate,  only 
apply  to  the  average  building,  and  must  be  modified 
to  suit  the  surroundings  in  each  locality.  The  first 
method  is  by  the  number  of  rooms,  the  second  by  the 
number  of  square  feet  in  the  floors  and  the  third  by 
the  number  of  cubic  feet  in  the  building. 

The  first  rule  is  sometimes  used  by  carpenters 
who  have  erected  a number  of  buildings  and  have 
computed  the  cost  of  the  work  and  material  in  their 
line  with  the  addition  of  the  work  of  the  plasterer, 
the  painter  and  the  paper  hanger,  but  with  no  allow- 
ance for  fine  finish.  In  fact  it  covers  nothing  but  a 
plain  frame  dwelling  with  no  very  large  rooms.  The 
figure  usually  given  is  $100  per  room,  counting  the 
cellar  as  one  room.  Where  lumber  is  cheap  and 


OF  MUTUAL  INSURANCE 


199 


labor  cost  not  excessive  it  will  barely  cover  the  ex- 
pense. Should  porches  or  fine  inside  work  be  added 
this  estimate  will  be  too  low,  as  it  will  also  be  where 
lumber  and  wages  are  high. 

The  floor  area,  found  by  multiplying  the  ground 
area  by  the  number  of  stories,  is  also  used  as  a basis. 
The  cost  of  ordinary  plain  frame  dwellings  is  esti- 
mated at  $1.00  per  square  foot  of  floor.  More  elabor- 
ate structures  are  much  higher.  This  method  is  defec- 
tive, as  it  takes  no  account  of  the  height  of  the 
stories.  It  is  even  worse  guess  work  than  the  first. 

The  third  method,  by  the  cubic  foot,  is  more 
satisfactory,  than  either  of  the  others.  It  takes  into 
account  the  size  of  rooms  and  heights  of  ceilings, 
which  the  others  do  not.  Good  authorities  estimate 
dwellings  at  4%  to  10  cents,  according  to  finish.  It 
would  be  error  to  assume  that  an  estimate  can  be 
made  in  this  manner  for  every  locality.  The  average 
cost  per  cubic  foot  for  each  locality  must  be  arrived 
at  by  deductions  from  the  cost  of  buildings  actually 
erected  in  the  several  localities.  This  cost  will  vary 
with  the  varying  cost  of  lumber  and  materials,  the 
rise  and  fall  of  freights  and  of  wages,  etc. 

THE  BEST  METHOD. 

The  best  method  for  the  adjuster  is  to  procure 
the  actual  bills  for  labor  and  material  of  as  many 
buildings  as  he  can.  From  them  he  can  make  a table 
which  will  be  tolerably  accurate  for  his  locality.  This 
table  he  can  adjust  from  time  to  time,  as  prices  and 
styles  change. 


200 


A HAND  BOOK 


There  is  much  difference  between  dwellings 
erected  at  different  periods,  especially  in  the  west. 
The  earlier  constructions  are  of  the  plainest  char- 
acter. Probably  there  are  few  new  towns  where  the 
average  building  is  much  more  than  a wind  break. 
But  year  after  year  the  buildings  improve  until 
finally  the  cost  per  cubic  foot  is  doubled,  perhaps 
tripled.  The  adjuster  must  keep  up  with  all  this. 

Barns  and  other  out  buildings  are  built  much 
more  cheaply  than  houses.  They  have  stronger  tim- 
bers but  the  other  material  may  be  cheaper,  2 to  2y2 
cents  a cubic  foot  will  be  fair. 

In  computing  the  cost  per  cubic  foot,  different 
adjusters  do  not  use  the  same  rules.  Some  find  the 
square  feet  in  the  ground  area  and  then  multiply  by 
the  height  of  the  stories  plus  one  third  of  the  slant 
height  of  the  roof.  Additions  containing  a different 
number  of  rooms  must  be  computed  separately. 
Others  take  the  actual  number  of  cubic  feet  in  the 
rooms  or  in  the  square  part  of  the  barn. 

WHAT  IS  A TOTAL  LOSS? 

This  question  is  important,  especially  in  states 
which  have  valued  policy  laws.  It  has  come  before 
the  courts  on  different  occasions  as  a matter  of  fact 
for  a jury  to  decide.  The  doctrine  laid  down  is  that 
a building  is  a total  loss  when  its  indentity  as  such 
building  is  entirely  destroyed.  Others  say  that  a 
building  is  a total  loss  when  it  must  be  rebuilt,  and 
not  repaired  and  when  no  portion  remaining  can  be 


OF  MUTUAL  INSURANCE 


201 


used  to  advantage  in  repairing  it.  When  a building 
is  repaired,  it  is  still  the  same  building,  when  it  is 
rebuilt  or  reconstructed,  it  is  a new  one. 

The  fact  that  some  portion  of  the  building  is 
unconsumed  does  not  prevent  the  loss  from  being 
total,  if  that  portion  standing  cannot  he  used  to  ad- 
vantage in  repairing  it.  In  one  instance,  a flue  and 
a side  wall  were  left  intact.  It  was  proven  that  these 
could  not  be  used  to  advantage  in  repairing  the 
building,  the  court  held  the  loss  total.  In  another 
case,  a basement  wall  and  part  of  a cellar  foundation 
were  left.  They  could  not  be  utilized  and  the  loss 
was  held  to  be  total.  Cellar  and  foundation  walls 
have  been  the  subjects  of  many  disputes.  Instances 
are  reported  where  adjusters  have  tried  to  deduct 
the  whole  cost  of  excavation,  simply  because  a hole 
in  the  ground  did  not  burn.  Most  cellars  are  walled 
in  some  way,  but  there  are  sections  of  country  where 
no  walls  are  needed,  if  the  water  is  kept  out.  When 
a fire  occurs  where  there  is  such  a cellar,  if  the  as- 
sured does  not  know  his  rights,  he  is  pretty  sure  to 
be  swindled. 

AVOID  TECHNICALITIES. 

Mutuals  should  avoid  all  such  tricks,  and  should 
observe  the  spirit  of  the  law  as  well  as  the  letter.  It 
is  an  old  maxim  that  the  law  is  not  concerned  about 
trifles.  To  attempt  to  evade  an  Insurance  contract 
because  a few  sticks  and  stones  have  not  been  re- 
duced to  ashes,  is  dishonest.  If  it  can  honestly  be 
said  that  what  is  left  is  of  no  practical  use,  that  the 
building  cannot  be  repaired,  the  loss  is  total. 


202 


A HAND  BOOK 


On  the  other  hand,  if  what  is  left  is  in  sufficiently 
perfect  condition  to  he  used  in  repairing,  then  the 
loss  is  not  total.  Suppose  a fire  takes  place  in  a 
barn,  the  timbers  are  scorched  but  not  weakened,  the 
shingles  and  siding  are  burned  off  but  the  sheeting 
on  the  roof  is  still  good,  then  the  loss  is  only  partial. 

There  is  a general  tendency  among  a man’s 
neighbors  to  exaggerate  his  loss  when  a fire  occurs, 
and  this  must  be  taken  into  account  when  deciding 
the  question  under  discussion.  There  will  probably 
be  conflicting  testimony.  The  adjuster  needs  to  in- 
spect for  himself  and  decide  for  himself. 

A good  authority  suggests  that  if  an  uninsured 
person  owning  the  building  and  desiring  to  replace 
it  as  good  as  it  was  before,  would  take  down  what 
remains  as  unfit  to  use  with  safety,  then  the  loss  is 
total.  Otherwise  it  is  not. 

SALVAGE. 

In  case  of  total  loss,  and  the  payment  of  the  face 
of  the  policy  by  the  company,  to  whom  does  the  sal- 
vage, if  any,  belong?  To  the  assured.  Some  com- 
panies have  gone  so  far  as  to  claim  deductions  for 
the  rubbish  and  even  for  the  “hole  in  the  ground,” 
that  is  sometimes  used  in  place  of  a cellar  by  dwellers 
on  the  western  prairies.  It  is  not  uncommon  for 
companies  to  make  claims  for  allowances  on  other 
accounts  equally  frivolous.  Something  depends  on 
the  wording  of  the  policy,  what  the  contract  is,  but 
generally  when  the  loss  exceeds  the  face  of  the 
policy,  it  is  the  same  as  if  it  were  total. 


OF  MUTUAL  INSURANCE 


203 


Three  fourths  clauses,  co-insurance  agreements, 
and  other  limitations  of  liability  would  influence  the 
award  while  the  ordinary  policy  agreement  insuring 
against  loss  by  fire  up  to  a fixed  amount  would  re- 
quire that  the  company  should  pay  all  damages  up 
to  the  face  of  the  policy. 

Insurance  practice  would  be  materially  simpli- 
fied if  the  states  would  adopt  a standard  policy  which 
should  state  clearly  the  liability  in  all  such  cases. 

RAILROAD  FIRES. 

Railroad  fires  are  frequently  a source  of  vexati- 
ous disputes.  Statutes  generally  hold  railroad  com- 
panies responsible  for  the  damage  done  by  sparks 
from  their  engines.  These  sparks  could  be  prevent- 
ed, but  to  do  so  would  be  expensive  and  inconvenient. 

In  these  days  when  everything  is  subordinated 
to  speed,  nothing  is  added  to  a locomotive  which  will 
interfere  with  the  draught  of  its  furnace  or  will  in- 
crease its  weight.  It  is  considered  cheaper  to  pay 
for  the  losses  than  to  suppress  the  sparks.  As  long 
as  this  is  the  case,  the  railroads  should  pay  the  in- 
jured party  in  full,  and  when  the  party  is  an  Insur- 
ance company,  it  should  receive  the  amount  of  dam- 
age it  has  been  called  on  to  pay  up  to  the  full  amount 
of  the  policy.  Many  states  have  statutes  to  this 
effect  and  these  have  generally  been  upheld  by  the 
courts. 

Kansas,  not  long  since,  enacted  a similar  law. 
A railroad  company  set  fire  to  and  destroyed  insured 
property.  The  Insurance  company  paid  the  loss  and 
then  demanded  to  be  subrogated.  The  railroad  made 


204 


A HAND  BOOK 


a vigorous  fight  but  the  Mutual  won  the  case.  It  is 
to  the  credit  of  the  Mutuals  that  one  of  their  number 
was  the  first  to  take  up  this  matter  and  to  win  a vic- 
tory. 

VACANT  OR  UNOCCUPIED. 

The  same  principle  should  apply  whenever  des- 
tructive fires  are  set  out  by  any  party  whatever. 

The  New  York  form  of  standard  policy  provides 
that,  “if  a building  herein  described,  whether  intend- 
er for  occupancy  by  owner  or  tenant,  be  or  become 
vacant  and  unoccupied  and  so  remain  for  ten  days, 
the  policy  shall  become  void. ’ ’ Some  other  standard 
forms  make  the  time  thirty  days  instead  of  ten. 
Still  another  form  uses  the  words,  “Vacant,  unoccu- 
pied or  uninhabited,  other  than  temporary  unoccu- 
pancy, during  absence  of  family  or  pending  rental 
or  change  of  tenants.’ * This  was  construed  by  a 
court  as  follows : 

“A  fire  policy  stipulated  that  is  should  be  void 
if  the  building  insured  should  become  vacant  or  un- 
occupied, unless  otherwise  provided  by  agreement 
endorsed  thereon.  At  the  time  of  the  issuance  of  the 
policy  the  building  was,  with  the  knowledge  of  the 
insurer,  occupied  by  tenant.  The  building  continued 
to  be  occupied  by  the  tenant  until  5 o ’clock  P.  M.  on 
the  day  the  same  was  destroyed.  The  tenant,  with- 
out the  knowledge  of  the  assured,  removed  there- 
from ; and  four  hours  after  the  removal,  and  before 
the  assured  had  learned  of  it  or  had  had  opportunity 
to  procure  another  tenant,  the  building  was  de- 
stroyed by  fire.  Held,  that  the  building  was  vacant 


OF  MUTUAL  INSURANCE 


205 


or  unoccupied,  within  the  meaning  of  the  policy,  at 
the  time  of  the  fire,  and  the  policy  was  void.”  Ohio 
Farmers  Ins.  Co.,  vs.  Vogel,  73  N.  E. 

This  decision  seems  to  consider  the  words  “va- 
cant” and  “unoccupied”  as  having  the  same  mean- 
ing. 

DOUBTFUL  CASES. 

The  form  using  the  words  ‘ ‘ reasonable  time  ’ ’ is 
objected  to  as  being  indefinite.  There  might  be  a 
dispute  as  to  what  length  of  time  is  reasonable. 
Under  the  form  which  gives  no  time  whatever,  dis- 
putes might  arise  as  to  what  constitutes  a vacancy. 

In  the  case  of  dwellings  is  it  necessary  that  some 
member  of  the  family  or  some  other  person  he  con- 
tinuously upon  the  premises?  These  technicalities 
have  been  raised.  Most  Mutual  policies  give  a speci- 
fied time,  after  which  the  Insurance  is  void.  This 
plan  is  fair  and  has  the  advantage  of  being  easily 
understood.  If  a policy  holder  wishes  to  leave  his 
house  for  any  length  of  time  exceeding  the  limit,  he 
knows  that  he  must  either  find  some  one  to  occupy  it 
or  procure  a vacancy  permit. 

The  doctrine  of  waiver  applies  in  vacancy  cases 
and  as  to  tenants.  The  principle  laid  down  in  the 
following  case  will  apply : “A  fire  policy  stipulated 
that  it  should  be  void  if  the  property  insured  was 
then  or  should  become  occupied  by  a tenant.  With 
the  knowledge  of  the  insurer,  the  property  was  at 
the  time  of  the  issuance  of  the  policy  occupied  by  a 
tenant.  Held,  that  the  stipulation  was  waived  by  the 
insurer.”  Ohio  Farmers  Ins.  Co.,  vs.  Vogel,  73  N.  E. 


206 


A HAND  BOOK 


MUST  KNOW  THE  FACTS  ABOUT  PROPERTY. 

No  agent  or  adjuster  can  do  the  work  satisfac- 
torily unless  he  has  some  knowledge  as  to  how  long 
the  property  he  deals  with  has  been  used,  and  how 
much  of  its  original  value  is  lost.  Under  the  head  of 
classification  of  risks  will  be  found  a table  of  depre- 
ciations hut  it  is  only  averages.  The  careful  man 
will  keep  his  house  in  good  repair,  and  the  yearly  re- 
duction of  value  will  be  very  small.  But  the  man 
who  pays  no  attention  to  his  dwelling  will  let  it  run 
down  so  that  it  may  become  uninsurable  in  a few 
years.  Machinery  in  the  hands  of  careful  men  will 
last  for  many  years,  hut  the  unskillful  will  destroy 
it  in  a few  months. 

All  these  matters  must  he  decided  by  observa- 
tion. It  is  the  only  fair  way.  A fixed  rule  is  unjust. 
It  offers  a reward  for  carelessness  and  places  a pen- 
alty on  thrift.  The  adjuster  should  in  every  in- 
stance ascertain  as  nearly  as  possible  the  exact  cash 
value  of  the  property  at  the  time  of  loss. 

A GOOD  PRACTICE. 

At  the  Chicago  meeting  of  the  National  Associa- 
tion, Mr.  Lincoln  R.  Welch,  of  Fitchburg,  Massa- 
chusetts, read  an  able  paper  * 4 Classification  of  Farm 
Risks. ’ ’ It  was  illustrated  by  photographic  views  of 
many  of  the  buildings.  These  views  were  of  such 
material  service  that  it  has  since  been  suggested  that 
it  would  probably  be  well  for  every  agent  to  carry  a 
kodak  and  to  take  one  or  two  views  of  each  building 
and  send  them  in  with  the  application.  They  would 
be  of  material  service  to  the  adjuster  in  case  of  loss. 


OF  MUTUAL  INSURANCE 


207 


SENTIMENT  HAS  NO  MARKET  VALUE. 

Adjusters  should  bear  in  mind  that  sentiment 
cannot  he  appraised  at  a cash  value  nor  can  it  he  in- 
sured. Worn  out  articles  of  furniture,  heirlooms 
from  ancestors,  may  be  valued  very  highly  owing  to 
associations  but  that  value  is  purely  sentimental.  It 
will  bring  nothing  on  the  market.  It  is  the  cash 
value  which  must  be  considered  and  nothing  else.  It 
is  said  that  adjusters  occasionally  have  trouble  in 
settling  with  losers  of  family  portraits.  Sometimes 
when  musical  instruments  are  burned  the  owners 
seem  to  think  that  they  have  an  especial  worth  far 
above  the  average.  In  both  cases  the  estimate  is 
sentimental.  Only  the  actual  value  should  be  paid. 

The  true  spirit  of  the  adjuster  should  be  that 
of  payer  and  loser  both.  If  the  loss  was  his,  what 
would  he  be  willing  to  settle  for.  If  he  had  it  to  pay, 
what  would  he  be  willing  to  give  to  make  it  good. 
Let  the  loser  be  given  to  understand  that  the  adjuster 
occupies  that  position. 

When  intricate  legal  questions  arise  neither 
agent  nor  adjuster  should  attempt  to  settle  them. 
For  instance,  a loss  occurs  on  mortgaged  property 
in  which  two  or  more  parties  are  interested.  Ex- 
treme care  should  be  taken  that  nothing  is  said  or 
done  to  commit  the  company  to  any  opinion.  Should 
the  loss  be  paid  to  the  wrong  party  it  might  be  neces- 
sary to  pay  it  again.  So  an  official  might  very  easily 
waive  some  important  matter,  to  the  detriment  of  the 
company.  Eefer  all  complicated  questions  to  the 
home  office. 


A HAND  BOOK 


ARBITRATION  AND  APPRAISAL. 

These  terms  are  used  indifferently  by  writers  on 
Insurance.  Nearly  all  policies  of  Insurance  provide 
that  in  cases  of  disagreement  as  to  amount  of  loss  or 
damage,  the  company  shall  choose  one  arbitrator  and 
the  assured  another,  and  they  two  shall  select  an  um- 
pire, and  that  the  matter  shall  be  submitted  to  these 
three  for  a decision.  Some  policies  contain  a provis- 
ion that  this  decision  shall  be  binding.  But  the  com- 
panies have  no  right  to  make  any  such  positive  pro- 
vision. The  established  courts  of  the  land  are  the 
final  resorts  in  cases  of  disagreement  and  they  will 
not  permit  any  person  or  organization  to  usurp  their 
functions.  The  companies  which  print  this  clause 
are  perfectly  aware  that  it  is  not  legally  binding.  It 
is  not  found  in  any  standard  policy  form.  The  usual 
wording  of  the  standard  policy  clause  is,  ‘ 4 shall  be 
conclusive  and  final  upon  the  parties  as  to  the 
amount  of  loss  or  damage,  and  such  reference  unless 
waived  by  the  parties  shall  be  a condition  precedent 
to  any  right  of  action  in  law  or  equity  to  recover  such 
loss.,, 

The  courts  will  not,  however,  disturb  an  award 
unless  some  real  fraud  or  injustice  can  be  shown.  If 
there  is  fraud  on  the  part  of  an  appraiser,  or  if  the 
award  is  grossly  unjust,  the  courts  will  set  it  right. 
But  as  said  above,  the  arbitration  is  a condition  pre- 
cedent to  such  suit. 


RICHARD  F.  BARRETT,  CONCORD,  MASS. 

Mr.  Barrett  started  as  an  office  boy  with  the  old  Middlesex  in 
the  historic  town  of  Concord,  Mass.,  under  his  father,  the  late 
Capt.  Richard  Barrett,  who  was  chosen  to  the  position  of  sec- 
retary and  treasurer  shortly  after  his  return  from  service  in  the 
late  Civil  war.  The  business  of  the  company  was  so  small  that 
they  succeeded  in  doing  the  work  for  a number  of  years  without 
help,  (the  subject  of  our  sketch  has  often  stated  that  his  father 
did  most  of  it).  In  1887  he  was  chosen  secretary  and  treasurer 
to  succeed  his  father;  in  1896  president  and  treasurer,  which  po- 
sition he  still  holds. 

With  the  blood  of  several  generations  of  fighters  in  his  veins , 
it  is  no  wonder  that  Mr.  Barrett  is  one  of  the  aggressive  and 
successful  Mutual  Insurance  men  of  the  United  States. 


C.  F.  MINGENBACK,  McPHERSON,  KANSAS. 

Mr.  Mingenback  has  been  for  several  years  the  secretary  of 
the  Farmers’  Alliance  Insurance  Company,  of  McPherson,  Kan- 
sas, one  of  the  largest  Mutuals  in  the  United  States.  He  has  de- 
voted himself  to  two  objects,  the  building  up  of  his  own  company 
and  the  advancing  the  cause  of  fraternity  as  a means  of  aiding 
human  progress  and  of  increasing  human  happiness. 


OF  MUTUAL  INSURANCE 


2oy 


SUNDRY  CAUTIONS. 

Arbitration  is  generally  concerned  with  dam- 
ages. When  there  is  a proposition  to  arbitrate  a 
total  loss,  an  agreement  to  do  so  might  waive  the 
right  to  appeal  to  the  courts.  In  such  cases  an  attor- 
ney should  be  consulted. 

Arbitration  is  always  resorted  to  as  a defense, 
by  the  company  if  it  thinks  that  the  loser  demands 
too  much;  by  the  policy  holder  if  he  is  dissatisfied 
with  what  the  company  offers  him. 

With  the  Mutuals  the  arbitration  proceedings 
are  generally  more  of  the  nature  of  an  adjustment 
than  anything  else.  There  is  rarely  any  trouble. 

Sometimes,  an  adjuster  or  an  agent,  will  tell  the 
loser  that  there  is  a flaw  in  the  policy  and  that  the 
company  is  not  liable.  This  waives  all  arbitration 
on  the  part  of  the  company.  The  matter  can  be 
taken  directly  to  the  courts  which  will  settle  all  ques- 
tions. 

This  same  principle  will  apply  when  it  is  claimed 
that  by  some  act  the  assured  has  voided  the  policy. 
These  are  questions  for  courts  and  juries.  They  are 
generally  questions  of  law  and  fact,  not  estimates  of 
amounts  of  damage. 

The  honest  policy  holder,  who  has  carefully  ob- 
served the  contract  will  have  little  trouble  in  case  of 
loss.  If  the  arbitration  is  wrong  the  courts  will  set 
it  right. 

Though  a policy  requires  the  arbitration  of  the 
amount  of  loss  when  requested  as  the  condition  pre- 
cedent to  liability,  suit  may  be  maintained  both  to  set 

13 


210 


A HAND  BOOK 


aside  an  award  and  for  a recovery  on  the  policy. 
But  such  an  arbitration  is  a condition  precedent  to 
suit. 

Vincent  vs.  German  Ins.  Co.,  Freeport , III.,  94, 
N.  E.  Rep.,  Iowa. 

In  some  states  it  is  a statutory  provision  that  no 
person  shall  be  chosen  or  act  as  referee,  against  the 
objection  of  either  party,  who  has  acted  in  a like 
capacity  within  four  months  and  this  clause  is  print- 
ed in  the  standard  policy. 

LOSSES  NOT  OFTEN  CONTESTED. 

Insurance  companies  generally  avoid  collisions 
with  their  policy  holders  whenever  they  can.  The 
amount  of  contested  losses,  as  shown  by  the  reports 
to  the  state  departments,  is  much  smaller  than  is 
usually  supposed,  and  it  is  but  trifling  in  the  case  of 
mutuals. 

The  proportion  of  loss  claims  resisted  in  court 
is  also  smaller  than  is  generally  supposed,  and 
would  be  still  less  if  people  would  read  their  policies 
and  use  a little  care  in  keeping  the  contract.  When 
the  conditions  of  the  policy  are  violated,  the  contract 
is  broken  and  in  case  of  loss  it  is  plainly  the  duty  of 
the  company  to  resist  the  payment.  Incendiarism  or 
any  form  of  fraud  should  be  fought  to  the  bitter  end. 
This  of  course  refers  to  respectable  companies,  for 
there  are  a few  which  have  gained  an  unenviable 
notoriety  by  refusing  payment  whenever  they  saw 
an  opportunity  to  bulldoze  or  cajole  the  loser  out  of 
his  money.  These  companies  have  found  this  course 
profitable.  They  have  encouraged  over-insurance 


OF  MUTUAL  INSURANCE 


211 


with  the  view  of  resisting  the  loss  if  any  should 
occur,  and  they  are  largely  responsible  for  the  valued 
policy  laws  and  similar  legislation. 

THE  POSITION  Or  MUTUALS. 

Mutual  companies  are  legally  and  morally 
bound  to  pay  all  legitimate  losses  in  full  and  the  same 
obligation  rests  upon  them  to  contest  all  frauds.  The 
money  which  the  stock  company  handles  is  its  own ; 
it  pays  or  not  as  it  sees  fit.  The  money  which  the 
Mutual  handles  is  not  its  own,  but  is  held  in  trust 
for  its  policy  holders.  It  has  no  right  whatever  to 
pay  out  wrongfully,  no  more  than  it  has  to  withhold 
in  case  of  genuine  loss. 

If  the  agents  are  faithful  in  doing  their  duty,  if 
they  reject  all  doubtful  and  undesirable  loss  claims, 
if  they  avoid  over  insurance  and  keep  a sharp  look- 
out for  frauds  generally,  if  the  policy  holders  would 
lend  their  assistance,  there  would  be  but  few  resisted 
loss  claims  among  the  Mutuals. 

Statistics  on  this  matter  are  not  easy  to  obtain. 
The  reports  are  not  full.  But  in  the  year  1903  there 
were  in  the  States  of  Connecticut  and  Massachusetts 
sixty-three  Mutuals,  of  which  five  show  small  losses 
resisted.  At  the  same  time  there  were  in  the  same 
states,  eleven  joint  stock  companies,  of  which  ten 
show  losses  resisted,  showing  a proportion  of  eleven 
to  one  in  favor  of  the  Mutuals.  That  is  probably  not 
far  from  the  average.  This  shows  that  the  Mutuals 
are  fairly  conducted  and  that  their  officers  act  their 
part  faithfully.  They  should  have  due  credit. 


112 


A HAND  BOOK 


The  class  Mutuals  have  the  least  trouble  with 
adjustments.  Each  has  only  one  class  of  losses  to 
deal  with,  the  line  it  insures,  and  all  its  officers  are 
experts.  There  is  very  little  probability  of  working 
through  a fraudulent  scheme,  as  any  attempt  at  over 
insurance  would  be  detected  at  once. 

Adjustments  in  cases  of  loss  by  hail  and  loss  of 
live  stock  by  lightning  are  treated  in  the  chapters  re- 
lating to  those  subjects,  to  which  the  reader  is  re- 
ferred. 


PECULIAR  QUESTIONS. 

Insurance  men  not  unfrequently  meet  the  ques- 
tion whether  certain  fixtures,  pieces  of  machinery, 
etc.,  are  parts  of  the  building,  and  hence  real  estate, 
or  whether  they  are  personal  property.  The  prevail- 
ing rule  is  that  whatever  is  built  in  with  the  struc- 
ture so  that  material  changes  will  be  required  to  per- 
mit its  removal  is  real  estate.  Engines,  boilers,  line 
shafting,  water  wheels,  and  similar  constructions 
would  be  so  considered.  Shelving,  counters,  etc.,  if 
permanently  attached,  are  part  of  the  building. 

But  machinery,  simply  set  on  the  floor,  fixtures 
attached  by  nails,  and  all  articles  of  that  kind  are 
personal  property.  The  distinction  is  sometimes 
made  by  stating  that  whenever  the  removal  of  any 
object  injures  a building,  that  object  is  real  estate, 
otherwise,  it  is  personal  property.  Of  course,  the 
injury  must  be  visible  as  such,  and  must  be  enough 
to  be  noticed.  The  mere  withdrawing  of  a nail  is  an 
injury,  but  it  is  trivial,  and  such  as  can  not  be  avoid- 
ed. Another  test  is  what  the  tenant  brings  with  him 


OF  MUTUAL  INSURANCE 


218 


with  the  expectation  of  removing  at  the  expiration 
of  his  lease  is  personal  property.  So  machinery  put 
in  by  the  owner  of  the  building  which  may  be 
changed  or  removed  from  time  to  time,  is  personal 
property,  while  the  line  shafting,  which  runs  these 
machines  might  be  part  of  the  building.  Small  port- 
able engines  and  the  accompanying  shafting  are  per- 
sonal property. 

If  each  building  is  fully  described  in  all  its  parts 
and  if  machinery  is  specifically  mentioned,  there  will 
be  no  confusion  on  these  matters. 


CHAPTER  XII. 


OVER  INSURANCE. 

DIFFERENT  CLASSES. 

This  vexed  question  has  been  discussed  from  the 
earliest  days  of  underwriting  down  to  the  present. 
And  so  long  as  old  Virgil’s  4 ‘cursed  thirst  for  gold” 
shall  survive,  so  long  will  the  subject  still  remain  to 
perplex.  It  is  by  no  means  simple,  on  the  contrary 
it  is  many  sided.  Over  insurance  may  arise  from 
criminal  intent  of  the  assured,  the  policy  being  se- 
cured by  misrepresentation,  the  insured  having  in 
mind  a deliberate  plan  to  burn  the  property  for  the 
sake  of  the  money  to  he  received.  There  are  pro- 
fessionals in  this  line.  They  generally  deal  in  stocks 
of  goods.  They  open  a store  in  some  city,  stock  it 
well,  insure  it  heavily.  They  make  a show  of  doing 
an  enormous  business,  but  in  reality  goods  sold  are 
not  replaced,  the  valuable  part  of  the  stock  is  sur- 
reptitiously shipped  out,  and  in  due  time  the  fire 
occurs.  The  loss  is  paid  and  the  criminal  goes  to  a 
distant  state  to  repeat  the  performance  perhaps  un- 
der another  name. 

There  is  also  the  over  insurance  arising  from  the 
greed  of  agents  and  the  rapacity  of  the  company. 
Knowing  by  experience  that  only  one  man  in  forty 
has  a loss,  companies  wink  at  or  even  encourage  the 

214— 


OF  MUTUAL  INSURANCE 


215 


agent  in  putting  on  the  property  all  the  Insurance 
the  owner  can  he  induced  to  pay  for.  The  company 
gets  a large  premium  and  the  agent  a big  commis- 
sion. So  long  as  no  losses  occur  this  fraud  goes  on 
undetected,  but  when  a fire  does  take  place  there  is 
generally  an  attempt  on  the  part  of  the  company  to 
resist  payment,  a refusal  to  deliver  the  indemnity 
paid  for,  and  very  often  a law  suit. 

There  is  a third  class  of  over  insurers,  the  happy 
go-lucky  people  who  always  over  estimate  every- 
thing of  their  own.  Men  of  this  kind  are  pretty  sure 
to  be  insured  for  all  their  property  will  bear.  But 
while  they  are  generally  happy  they  have  fits  of  de- 
spondency and  then  they  lo  se  all  interest  and  while 
they  would  not  think  of  purposely  setting  their  prop- 
erty on  fire,  would  not  care  very  much  if  in  some 
mysterious  way  it  should  go  up  in  smoke,  which  it 
often  does. 

There  is  also  the  big  house  built  in  the  boom 
days.  It  brings  no  rent,  the  tenant  keeps  up  the  two 
or  three  rooms  which  he  occupies  and  the  rest  go  to 
rack  and  ruin.  There  is  a big  bill  of  repairs  looming 
up  in  the  near  future  and— well  it  burns  and  that 
settles  it. 

This  is  on  the  same  line  as  the  conflagrations  in 
street  car  barns,  so  frequent  among  companies  which 
have  just  replaced  their  old  rolling  stock  with  new. 
It  is  singular  how  rarely  any  but  old  cars  happen 
to  be  in  the  barns  when  they  are  burned. 


116 


A HAND  BOOK 


REMEDIES— VALUED  POLICY  LAW. 

Beyond  and  back  of  the  company,  its  agents,  and 
the  over  insurance  stands  another  party  in  interest— 
the  great  mass  of  policy  holders,  honest  active  men 
on  whom  the  burden  of  supporting  the  company  is 
laid,  and  on  whom  falls  as  a matter  of  course  the 
great  expense  of  all  the  frauds.  What  shall  be  done 
for  them  and  their  protection? 

The  first  answer  to  this  question  was  the  valued 
policy  law.  The  law  provided  that  the  amount  stated 
in  the  policy  shall  be  the  value  of  the  property  in 
case  of  total  loss,  and  the  companies  must  pay  it  in 
full.  The  object  of  this  is  to  compel  the  companies 
to  be  careful  in  the  selection  of  their  agents,  and  to 
use  caution  in  accepting  risks.  As  has  been  said 
above  there  are  companies  and  agents  whose  prac- 
tice is  exceedingly  loose,  why  should  they  not  be  held 
up  to  their  contracts  and  made  to  pay  as  they  agreed 
to?  Located  in  distant  states  and  chartered  under 
laws  perhaps  of  still  other  states,  these  companies 
are  difficult  to  reach,  the  valued  policy  law  is  sup- 
posed by  many  to  be  the  best  means  of  reaching 
them. 

A WRONG  POSITION. 

There  are  those  who  openly  defend  the  loose 
way  of  doing  business  which  has  just  been  described. 
In  the  Underwriters  Review,  Feb.  10,  1904,  occurs 
the  following  paragraph : 

4 ‘ The  essence  of  fire  underwriting  is  and  always 
has  been  everywhere  to  provide  indemnity,  i.  e.,  to 
replace  the  destroyed  property  or  pay  its  equivalent 


OF  MUTUAL  INSURANCE 


217 


in  money.  The  argument  of  the  advocates  of  the  so- 
called  valued  policy  law  seems  at  first  thought  plausi- 
ble, viz:— that  if  the  companies  insure  property  for 
more  than  its  actual  value,  it  is  their  fault,  it  being 
claimed  that  the  agent  or  some  representative  of  a 
company  should  carefully  appraise  the  value  of  the 
risk  taken.  This  supposes  an  impossible  achieve- 
ment, unless  the  companies  are  to  increase  the  prem- 
iums charged  to  a point  which  would  simply  be  un- 
endurable to  the  insured.  The  companies  get  their 
business  through  their  local  agents,  few  of  whom  are 
expert  judges  of  the  value  of  buildings,  and  some  of 
whom  are  more  than  willing  to  insure  a patron  for 
any  amount,  for  the  larger  the  premium  the  greater 
the  agent’s  commission.  What  would  it  mean  to 
have  valued  by  a competent  representative  every 
building  insured  V9 

This  put  into  plain  English  means  that  the  com- 
panies shall  not  be  responsible  for  the  acts  of  their 
agents.  This  is  contrary  to  common  law,  common 
custom  and  common  honesty.  No  other  class  of  busi- 
ness men  make  that  claim  regarding  their  agents. 
Some  tried  it  about  a score  of  years  ago,  and  the  re- 
sult was  a popular  uprising  all  over  the  country  and 
a grist  of  savage  laws,  which  while  well  intended, 
were  disastrous  in  their  operation.  Nor  is  the  para- 
graph true.  There  is  a cubic  foot  rule  with  regard  to 
dwellings  in  use  by  most  companies  which  is  found 
satisfactory.  Any  agent  possessing  good  ordinary 
sense  can  easily  ascertain  the  value  of  business 


218 


A HAND  BOOK 


blocks,  etc.,  in  bis  own  town  or  city.  The  difficulty 
imagined  in  the  paragraph  does  not  exist.  The  best 
old  line  text  books  do  not  admit  it. 

The  valued  policy  laws  of  several  states  are  giv- 
en. It  will  be  seen  that  they  attack  every  position  in 
the  quotation  above.  Some  demand  that  the  very 
appraisal  declared  impossible  to  the  agent  shall  be 
made,  some  that  the  excess  premium  be  returned, 
some  that  the  company  shall  pay  in  full  and  some 
inflict  a penalty  for  over  insurance. 

LAWS  OF  THE  STATES. 

The  object  of  these  laws  is  to  prevent  willful  and 
deliberate  over  insurance  by  the  companies  through 
their  agents  with  a view  to  extorting  an  excessive  and 
dishonest  profit.  This  practice  originated  many 
years  ago  and  while  it  was  not  universal,  there  were 
companies  which  made  it  the  rule  rather  than  the 
exception.  The  evil  increased  rather  than  dimin- 
ished until  nearly  twenty  years  ago  an  organized 
effort  was  made  to  do  away  with  it.  The  so-called 
valued  policy  law  was  passed  in  Vermont  and  New 
Hampshire.  The  uproar  was  immediate  and  tre- 
mendous. The  outside  companies  at  once  withdrew 
from  these  states.  But  home  companies  were  at 
once  organized  to  take  their  place  and  the  bluster 
amounted  to  naught.  The  companies  finally  gave  up 
their  fight  and  returned  to  their  former  conditions. 
Since  that  time  several  other  states  have  passed  simi- 
lar laws,  and  the  drift  of  opinion  seems  to  have  been 
in  their  favor  until  lately,  not  as  a complete  remedy 


OF  MUTUAL  INSURANCE 


219 


for  the  evil  but  as  doing  something  to  suppress  it 
and  as  the  only  remedy  they  happened  to  think  of. 

Under  the  system  of  over  insurance  as  it  then 
prevailed  the  agent  increased  his  commissions  and 
the  company  their  gains,  both  worked  in  harmony 
to  rob  the  policy  holder.  It  is  at  this  practice  that 
most  of  these  laws  are  aimed.  Of  these  quoted,  Miss- 
issippi and  West  Virginia  make  the  amount  of  the 
policy  the  measure  of  damage,  Wisconsin  and  Ne- 
braska follow  the  same  line.  Kentucky  included  live 
stock,  New  Hampshire,  excepts  fraudulent  over  in- 
surance. Delaware  makes  the  valuation  of  the  prop- 
erty a part  of  the  contract.  Ohio  and  Minnesota  re- 
quire an  actual  examination  by  the  insurer  or  his 
agent,  such  agent  to  fix  value,  which  is  conclusive. 
All  these  aim  to  destroy  the  profit  of  over  insurance 
by  making  the  company  pay  the  full  amount  of  the 
policy.  Massachusetts  takes  an  entirely  different 
line.  That  state  aims  to  destroy  all  profit  from  over 
insurance  either  to  the  company  or  to  the  policy 
holder  and  punishes  the  company  therefor.  This  is 
an  excellent  law. 


OPPOSING  OPINIONS. 

Of  the  effect  of  the  valued  policy  law  it  is  not 
easy  to  speak  in  positive  terms.  There  are  men  of 
the  opinion  that  it  has  had  a tendency  to  make  some 
companies  more  careful  in  the  acceptance  of  risks. 
That  is  probably  true.  But  if  the  incendiary  can 
effect  his  Insurance  more  easily,  then  the  valued 
policy  law  works  to  his  advantage.  And  if  the  agent 
be  greedy  and  for  the  sake  of  commission  overvalues 


220 


A HAND  BOOK 


property,  he  makes  matters  worse  than  they  were 
before.  Where  this  law  exists  with  no  provision  for 
punishing  over  insurance  and  with  no  fire  marshal 
system,  the  effect  has  been  bad.  That  seems  to  be 
the  general  opinion.  Mr.  C.  S.  Collins  of  the  Arkan- 
sas Mutual  Fire  Insurance  Co.  of  Little  Rock,  Arkan- 
sas, writes  that  the  valued  policy  law  in  that  state 
“has  not  only  not  reduced  but  has  increased  losses 
and  incendiarism.  Dishonest  agents  co-operate  in 
procuring  over  insurance.  A loss  follows  and  the 
thief  hires  his  attorney  and  hides  behind  his  valued 
policy.’ ’ Other  Insurance  men  express  the  same 
opinion. 

The  law  is  one  sided ; it  does  not  reach  the  agent 
nor  the  policy  holder.  The  Massachusetts  law  is 
much  better.  But  in  order  to  reduce  the  evil  there 
should  be  a careful  inspection  of  risks  by  the  com- 
pany and  a cancelling  out  in  cases  of  over  insurance 
and  also  an  inspection  of  every  suspicious  fire  by  a 
state  officer  and  a prosecution  for  incendiarism 
whenever  the  evidence  warrants. 

LAWS  QUOTED. 

Arkansas  says:  “A  fire  insurance  policy  in 
case  of  total  loss  by  fire  of  the  property  insured 
shall  be  held  and  considered  a liquidated  demand 
against  the  company  taking  such  risk  for  the  full 
amount  on  which  the  company  charges  or  collects  a 
premium;  provided,  the  provision  of  this  act  shall 
not  apply  to  personal  property.” 


OF  MUTUAL  INSURANCE 


221 


New  Hampshire  says:  “If  insured  buildings 
are  totally  destroyed,  the  sum  insured  shall  be  taken 
to  be  the  value  of  the  insured’s  interest  therein,  as 
such  interest  is  described  in  the  policy,  unless  over 
insurance  therein  was  fraudulently  obtained ; if  they 
are  only  partially  destroyed  the  insured  should  be 
entitled  to  his  actual  damages,  not  exceeding  the  sum 
insured.  ’ ’ 

Kentucky  says  of  fire  and  storm  risks  on  real 
property:  “The  company  is  liable  for  the  full  esti- 
mated value  as  fixed  in  the  policy.  In  case  of  partial 
loss  the  liability  shall  not  exceed  actual  loss.  In  case 
of  death  of  live  stock,  the  liability  is  for  full  estimat- 
ed value  as  fixed  in  the  policy.  Fraud  in  fixing  the 
value  of  property  is  criminal.” 

Nebraska  says:  “Whenever  any  policy  of  In- 
surance shall  be  written  to  insure  any  real  estate 
property  in  this  state  against  loss  by  fire,  tornado  or 
lightning  and  the  property  insured  shall  be  wholly 
destroyed  without  criminal  fault  on  the  part  of  the 
assured  or  his  assigns,  the  amount  of  Insurance  writ- 
ten in  such  policy  shall  be  taken  conclusively  to  be 
the  true  value  of  the  property  insured  and  is  the 
amount  of  loss  and  measure  of  damage.  ’ ’ 

Wisconsin  says:  “Whenever  any  policy  shall 
be  written  to  insure  real  property  and  the  property 
insured  shall  be  wholly  destroyed  without  criminal 
fault  on  the  part  of  assured  or  assigns,  the  amount 
of  the  Insurance  written  in  such  policy  shall  be  taken 
conclusively  to  be  the  value  of  the  property  when 
insured,  and  the  true  amount  of  loss  and  measure  of 
damage  when  destroyed.  ’ ’ 


222 


A HAND  BOOK 


Mississippi  forbids  knowingly  issuing  any  fire 
Insurance  beyond  a fair  value  of  the  property.  In 
case  of  total  loss  the  damages  shall  be  the  amount  for 
which  the  property  was  insured;  in  case  of  partial 
loss  the  measure  of  damage  is  an  equal  amount  to  the 
damage  done  to  the  property  not  to  exceed  the 
amount  written  in  the  policy.  This  does  not  apply  to 
personal  property. 

West  Virginia  says:  “All  fire  Insurance  com- 
panies doing  business  in  the  state  shall  be  liable,  in 
case  of  total  loss  by  fire  or  otherwise,  as  stated  in  the 
policy  on  any  real  estate  insured,  for  the  whole 
amount  of  Insurance  stated  in  the  policy  of  Insur- 
ance upon  said  real  estate;  and  in  case  of  partial 
loss  by  fire  or  otherwise,  as  aforesaid,  of  the  real 
estate  insured,  the  basis  upon  which  said  loss  shall 
be  computed,  shall  be  the  amount  stated  in  the  policy 
of  Insurance  effected  upon  said  real  estate  and  the 
insured  shall  have  the  right  to  enforce  his  claim  for 
said  loss  in  any  court  having  jurisdiction.” 

Delaware  says:  “ Every  such  policy,  whether 
hereafter  issued  or  renewed,  shall  have  endorsed 
across  the  face  of  it  the  following:  ‘It  is  agreed  be- 
tween insurer  and  insured  that  the  value  of  the  in- 
sured property  is  of  the  sum  of  $ and  this 

estimate  shall  be  binding  on  both  parties  as  to  value ; 
provided,  however,  that  nothing  herein  contained 
shall  in  case  of  loss  prevent  the  company  insuring 
from  adjusting  the  loss  by  replacing  the  property 
destroyed,  and  in  case  any  owner  shall  effect  any 
subsequent  Insurance  upon  any  larger  value  than 
so  agreed  upon,  all  Insurance,  as  well  that  then 


OF  MUTUAL  INSURANCE 


223 


existing  as  that  subsequently  obtained,  shall  become 
void. ’ This  act  applies  to  all  policies  issued  on  real 
property. ’ ’ 

Ohio  says:  “Any  person,  company  or  associa- 
tion hereafter  insuring  any  building  or  structure 
against  loss  or  damage  by  fire  or  lightning,  by  a re- 
newal of  a policy  heretofore  issued  or  otherwise, 
shall  cause  such  building  to  be  examined  by  an  agent 
of  the  insurer  and  a full  description  thereof  to  be 
made  and  the  insurable  value  thereof  to  be  fixed  by 
such  agent ; in  the  absence  of  any  change  increasing 
the  risk  without  the  consent  of  the  insurers,  and  also 
of  intentional  fraud  on  the  part  of  the  insured,  in  a 
case  of  total  loss,  the  whole  amount  mentioned  in  the 
policy  or  renewal  upon  which  the  insurer  received  a 
premium,  shall  be  paid ; and  in  case  of  a partial  loss 
the  full  amount  of  the  partial  loss  shall  be  paid ; and 
in  case  there  are  two  or  more  policies  on  the  prop- 
erty each  policy  shall  contribute  to  the  payment  of 
the  whole  in  proportion  to  the  amount  of  Insurance 
mentioned  in  such  policy,  but  in  no  case  shall  the  in- 
surer be  required  to  pay  more  than  the  amount  men- 
tioned in  the  policy.  ’ ’ 

Minnesota  says:  “Any  person,  company  or  as- 
sociation hereafter  insuring  any  building  or  struct- 
ure against  loss  or  damage  by  fire,  lightning  or  other 
hazard,  by  a renewal  of  a policy  heretofore  issued 
or  otherwise,  shall  cause  said  building  to  be  exam- 
ined by  the  insurer  or  his  agent,  and  a full  descrip- 
tion thereof  made,  and  the  insurable  value  thereof 
to  be  fixed  by  the  insurer  or  his  agent,  the  amount 
of  which  shall  be  stated  in  the  policy  of  Insurance. 


224 


A HAND  BOOK 


In  the  absence  of  any  change  increasing  the  risk 
without  the  consent  of  the  insurer,  and  in  the  ab- 
sence of  intentional  fraud  on  the  part  of  the  insured, 
in  case  of  total  loss,  the  whole  amount  mentioned  in 
the  policy  or  renewal  shall  be  paid;  and  in  case 
there  are  two  or  more  policies  upon  the  property, 
each  policy  shall  contribute  to  the  whole  or  partial 
loss  in  proportion  to  the  amount  of  Insurance  men- 
tioned in  each  policy,  but  in  no  case  shall  the  insurer 
be  required  to  pay  more  than  the  amount  mentioned 
in  the  policy,  provided  that  in  the  absence  of  fraud, 
the  burden  of  proof  to  show  an  increase  of  risk  by 
reason  of  any  change  in  the  ownership  or  condition 
of  the  structure  or  building  upon  which  Insurance 
is  effected,  either  before  or  after  loss  arises,  shall 
be  upon  the  insurer,  anything  in  the  application  or 
policy  of  Insurance  to  the  contrary  notwithstanding. 
And  any  person  who  solicits  Insurance  and  procures 
the  application  therefor  shall  be  held  to  be  the  agent 
of  the  party  thereafter  issuing  the  policy  upon  such 
application,  or  renewal  thereof,  any  thing  in  the  ap- 
plication or  the  policy  to  the  contrary  notwithstand- 
ing. 

“Whenever  any  company  willfully  insures  prop- 
erty for  more  than  its  real  value  it  shall  forfeit  to  the 
state  school  fund  double  the  premium  collected  on 
such  policy.  ’ ’ 

A GOOD  LAW. 

Massachusetts  says:  “No  Insurance  company 
shall  knowingly  issue  any  fire  Insurance  policy  upon 
property  within  this  commonwealth  for  an  amount 
which  with  any  existing  Insurance  thereon  exceeds  a 


OF  MUTUAL  INSURANCE 


225 


fair  value  of  the  property  nor  for  a longer  term  than 
seven  years.  If  buildings  insured  against  loss  by 
fire  and  situated  within  this  commonwealth  are  total- 
ly destroyed  by  fire,  the  company  shall  not  be  liable 
beyond  the  actual  value  of  the  insured  property  at 
the  time  of  loss  or  damage,  and  if  it  shall  appear  that 
the  insured  has  paid  premiums  on  an  amount  in  ex- 
cess of  said  actual  value,  the  insured  shall  be  reim- 
bursed the  proportionate  excess  of  premiums  paid  on 
the  difference  between  the  amount  named  in  the  poli- 
cy and  said  actual  value  with  interest  at  six  percent 
from  the  date  of  issue ; and  said  excess  of  premiums 
and  interest  thereon  shall  be  allowed  the  insured 
from  the  time  any  company  or  companies  carrying 
said  Insurance  at  the  time  of  the  loss  have  continual- 
ly carried  the  Insurance  on  the  destroyed  building 
or  buildings,  whether  under  policies  existing  at  the 
time  of  the  loss  or  under  previous  policies  in  the 
same  company  or  companies.”  The  penalty  for  viola- 
tion is  a fine  of  not  more  than  $500. 

OTHER  PROVISIONS. 

There  are  three-fourths  value  clauses  issued  by 
some  companies.  These  vary  in  form  but  the  sub- 
stance of  all  is  that  the  company  shall  not  be  liable 
in  case  of  total  loss  for  more  than  three-fourths  of 
the  actual  value  of  the  property  destroyed.  This 
makes  the  owner  carry  one-fourth  of  the  risk  him- 
self and  is  an  incentive  to  him  to  take  good  care  of 
his  property.  Many  companies  say  it  works  well. 

14 


226 


A HAND  BOOK 


The  valued  policy  law  deals  only  with  the  com- 
pany, it  endeavors  to  suppress  over  insurance  by 
making  it  unprofitable  to  the  insurer.  Alone  it  is  of 
little  or  no  efficiency.  A state  fire  marshal  is  expect- 
ed to  render  incendiarism  dangerous  by  his  diligence 
in  investigating  all  fires  of  doubtful  origin  and 
bringing  criminals  to  justice  whenever  possible.  He 
is  generally  required  to  inspect  dangerous  places 
especially  in  the  so-called  congested  districts  of  the 
large  cities.  In  every  state  where  there  have  been 
fire  marshals,  the  result  has  been  a material  saving, 
a great  reduction  of  fire  waste.  It  would  seem  easy 
to  set  a building  on  fire  and  escape  detection.  As  a 
matter  of  fact  it  is  difficult,  especially  in  larger  cities 
where  the  fire  department  generally  arrives  a few 
moments  after  the  alarm  is  given.  Firemen  general- 
ly form  a pretty  correct  idea  as  to  where  the  fire 
started  and  how  it  originated,  especially  when  the 
blaze  is  extinguished  before  it  has  done  much  dam- 
age. Incendiaries  always  plan  for  a total  loss,  if 
this  does  not  occur  their  arrangements  are  exposed. 

AN  INCENDIARY  FIRE. 

An  illustration  will  best  show  this.  Some  years 
since  a merchant  in  a large  city  put  in  an  enormous 
stock  of  clothing,  insuring  it  heavily.  For  about  six 
months  everything  went  on  apparently  as  in  other 
stores,  but  one  night  there  was  an  explosion  in  the 
store,  flames  shot  out  through  cracks  and  crevices  in 
every  direction.  The  fire  department  were  on  hand 
and  put  out  the  fire  at  once  and  discovered  a lighted 
candle  on  the  top  of  a small  stove  and  a broken  gas 


OF  MUTUAL  INSURANCE 


227 


pipe  in  the  ceiling  above.  The  owner  had  wrenched 
off  the  pipe  expecting  the  gas  to  fill  the  room,  ex- 
plode when  it  reached  the  candle  and  then  set  every- 
thing on  fire  beyond  the  possibility  of  extinguishing 
the  blaze.  It  was  a shrewd  scheme  but  it  failed,  the 
fire  was  put  out.  An  inspection  showed  that  most  of 
the  stock  had  been  surreptitiously  removed.  The 
owner  was  never  heard  of.  A warrant  was  issued 
but  the  officers  failed  to  find  him.  No  Insurance  was 
ever  paid. 


FIRE  MARSHALS  WANTED. 

In  such  cases  the  fire  marshal  can  do  good 
service.  He  is  an  expert  policeman  in  his  line  and 
an  expert  is  what  is  wanted. 

North  Carolina,  Maryland,  Ohio,  Pennsylvania, 
Rhode  Island  and  some  other  states  have  fire  mar- 
shals with  full  powers.  They  must  investigate  all  fires 
and  all  fires  must  be  reported  to  them.  They  may 
enter  buildings,  summon  witnesses,  take  testimony, 
etc.,  and  it  is  their  duty  to  cause  the  arrest  and  trial 
of  suspected  incendiaries.  Reports  from  these 
states  show  a large  reduction  in  the  number  of  fires 
of  incendiary  origin.  They  have  sent  several  incendi- 
aries to  the  penitentiary.  Alabama  makes  the  sher- 
iffs fire  marshals  with  power  to  summon  juries,  etc. 

Maine  has  inspectors  of  buildings  in  towns  of 
over  2,000.  Municipal  officers  must  inspect  fires, 
under  the  supervision  of  the  Insurance  commissioner 
who  has  ample  power.  This  system  seems  to  work 
well.  New  Hampshire  has  a similar  system. 


228 


A HAND  BOOK 


None  of  these  makeshifts  are  as  fully  effective 
as  a fire  marshal.  The  officers  are  not  expert  on  the 
line  of  fires  and  most  of  them  are  occupied  about  oth- 
er matters.  Insurance  companies  should  urge  the 
establishment  of  this  office  in  every  state.  The  fire 
marshal  would  far  more  than  save  his  expenses. 

The  fire  patrols  in  large  cities  must  not  be  con- 
fused with  fire  marshals,  they  are  merely  associa- 
tions for  the  purpose  of  saving  goods  from  burning 
buildings.  This  subject  is  treated  more  fully  else- 
where. 

EXAMINATION  OF  RISKS. 

The  valued  policy  laws  and  the  action  of  the  fire 
marshal  do  not  have  effect  till  after  the  fire.  There 
is  a growing  custom  among  the  Insurance  companies 
to  inspect  their  risks  occasionally  and  thus  discover 
cases  of  over  insurance  in  advance  and  cancel  the 
policies.  This  is  effective  and  one  after  another  of 
the  companies  is  adopting  it. 

The  result  of  these  inspections  has  been  to  bring 
to  notice  cases  of  over  insurance  and  also  to  discover 
dangerous  exposures,  bad  constructions  and  liabili- 
ties to  fires,  and  cause  them  to  be  remedied.  The 
saving  in  these  lines  more  than  makes  up  for  the  cost 
of  the  inspection. 

RECORDS  OF  INCENDIARIES. 

It  is  sometimes  advantageous  to  know  the  record 
of  persons  who  wish  to  insure  or  who  have  had  a 
loss.  These  records  can  generally  be  obtained  from 
the  great  detective  associations  when  their  services 


OF  MUTUAL  INSURANCE 


229 


are  needed.  Their  address  can  usually  be  obtained 
from  the  banks.  These  companies  do  only  a legiti- 
mate business.  They  will  find  where  the  evidence  is 
and  what  is  wanted  and  report  it  but  they  will  do  no 
more.  They  will  not  manufacture  evidence  nor  will 
they  go  upon  the  stand  to  testify.  The  common  de- 
tective who  swaggers  around  the  loafing  places  in 
small  towns  should  be  shunned.  He  is  utterly  unreli- 
able and  generally  unprincipled  besides. 

REWARDS. 

Offering  rewards  for  incendiarism  has  proved 
effective.  The  Lykens  Valley  Insurance  Company 
of  Elizabethville,  Penn.,  prints  the  following: 

‘ 4 Resolved,  That  the  executive  committee  be  and 
is  hereby  authorized  to  offer,  and  the  Board  of  Direc- 
tors agrees  to  pay  a reward  for  the  detection  and 
conviction  of  any  incendiary  or  incendiaries  setting 
fire  to  any  property  insured  in  this  company,  said 
reward  to  range  from  ten  to  two  hundred  dollars  at 
the  discretion  of  said  company,  and  be  based  upon 
the  amount  insured  on  the  property  so  fired.  ’ ’ 

Mr.  James  Miller  has  been  secretary  of  this  com- 
pany for  thirty-four  years  and  is  therefore  competent 
authority.  He  says  that  “this  notice  goes  out  from 
the  office  so  that  every  insured  person  can  read  it.” 

They  also  attach  clauses  limiting  the  liability 
of  the  company  and  compelling  the  insured  to  carry 
twenty  or  twenty-five  percent  of  the  risk  himself. 
Mr.  Miller  says,  “This  and  the  incendiary  clause  are 
both  good  in  their  way  and  because  we  use  both  to 
save  the  company  we  cannot  tell  which  is  most  effec- 


220 


A HAND  BOOK 


tive,  but  I believe  both  to  be  good  things  to  keep  the 
insured  as  honest  as  possible.  I know  there  are 
knockers  against  these  three-fourths  and  eighty  per- 
cent clauses  and  these  are  the  very  ones  I do  not 
trust.  People  will  make  money  out  of  an  Insurance 
company  if  they  can  and  it  cannot  always  be  prevent- 
ed even  if  these  clauses  are  on  the  policies.”  Mr. 
Miller  favors  a state  fire  marshal. 

SOME  RECOMMENDATIONS. 

The  investigations  of  this  subject  seem  to  show 
that  there  should  be  a penalty  on  the  companies  for 
over  insurance.  The  Massachusetts  law  seems  ex- 
cellent. It  prevents  payment  of  more  than  the  actual 
loss  in  case  of  fire  and  destroys  the  profit  of  over 
insurance  to  the  company,  adding  a penalty  for  the 
guilty  officials.  But  it  is  only  effective  when  brought 
to  light  by  a fire.  The  great  mass  of  over  insurance 
by  greedy  agents  would  still  go  undetected.  An  in- 
spection of  risks  would  reach  most  of  this.  The  com- 
missioner of  insurance  could  deal  with  companies 
habitually  guilty  by  causing  the  fire  marshal  to  look 
after  them.  Honest  companies  wishing  to  do  only  a 
legitimate  business  will  employ  their  own  inspectors 
who  will  see  that  every  policy  holder  carried  a part 
of  his  own  risk.  These  measures  with  the  rewards 
spoken  of  above  will  reduce  over-insurance  and  in- 
cendiarism to  a minimum. 

Mutual  companies  have  suffered  but  little  in 
comparison  from  over  insurance.  Their  care  in  tak- 
ing risks,  and  the  general  watchfulness  of  the  mem- 
bership have  so  guarded  them  that  cases  of  over 


OF  MUTUAL  INSURANCE 


281 


insurance  have  been  extremely  rare,  besides  most 
Mutuals  adopt  a plan  of  valuation  for  houses  and 
barns,  so  much  per  cubic  foot,  according  to  style, 
age,  etc.,  and  this  does  away  with  nearly  all  oppor- 
tunity for  over  insurance,  whether  intentional  or 
not.  Most  country  dwellings  will  take  a rate  of  six 
cents  per  cubic  foot.  Those  just  built  or  finished 
more  elaborately  than  usual  may  be  rated  one  or  two 
cents  higher.  This  illustrates  a plan  which  is  equit- 
able and  satisfactory  in  nearly  every  case.  But  as 
the  companies  increase  in  strength  and  in  business, 
evils  will  be  sure  to  appear.  Only  the  strictest  vigil- 
ance will  suppress  over  insurance  and  incendiarism. 

THE  RIGHT  KIND  OF  AGENT. 

Last  of  all  to  be  noticed,  but  of  most  importance 
is  the  agent.  If  the  agent  is  intelligent  and  consci- 
entious he  can  do  more  than  all  state  laws  and  state 
officials  put  together.  What  kind  of  a man  should 
such  an  agent  be?  Subjoined  is  a letter  received  by 
a Mutual  Insurance  company.  From  it  the  reader 
will  get  a better  idea  of  a model  agent  than  any  de- 
scription could  possibly  give.  Names  and  dates  are 
omitted : 

4 1 Dear  Sirs : 

“Your  favor  of  the is  at  hand  with  refer- 
ence to  renewing  your policy.  In  reply 

will  say  that  this  party  called  at  our  office  some  time 
ago  and  inquired  as  to  the  largest  Insurance  that  I 
would  let  him  have  on  his  buildings.  This  kind  of  a 


232 


A HAND  BOOK 


question  aroused  my  suspicions  a little  bit  and  in 

cross  questioning  Mr. , he  stated  that  he  had 

been  burned  out  three  times,  as  I remember  it,  so  that 
I did  not  consider  the  moral  hazard  very  good.  He 
advised  me  that  he  could  get  more  Insurance  on  his 
buildings  than  I offered  him,  which  was  in  accord- 
ance with  your  rules,  and  I supposed  that  he  had  got- 
ten his  Insurance  elsewhere.  Mr. may  be 

all  right,  but  putting  all  the  facts  together  I do  not 
believe  the  risk  would  be  a very  desirable  one. 

4 ‘Yours  respectfully, 

<< >> 

It  seems  settled  that  no  one  method  is  effective 
alone.  There  is  a unanimity  of  testimony  in  favor  of 
the  state  fire  marshal,  provided  the  office  can  be  kept 
out  of  politics.  One  official  in  Ohio  has  succeeded 
in  bringing  to  justice  a gang  of  incendiaries  who  had 
been  operating  for  twenty  years  and  who  had  cost 
the  Insurance  companies  $250,000.  In  other  states 
the  reduction  of  losses  has  been  immense.  Probably 
the  Massachusetts  over  insurance  law  as  given  above 
would  also  be  desirable.  In  addition  a thorough  sys- 
tem of  inspection  by  the  companies  should  be  under- 
taken. This  should  be  the  joint  work  of  all  the  com- 
panies occupying  any  given  territory.  The  inspectors 
should  look  for  over  valuation,  and  for  dangerous 
places  also.  It  has  been  proposed  that  this  work  be 
done  by  the  states,  but  in  dealing  with  corporations 
the  state  is  generally  a grafter.  Its  charges  are  ex- 
tortionate and  its  services  poor,  and  as  long  as  the 


OF  MUTUAL  INSURANCE 


2S3 


companies  can  be  made  to  furnish  revenues  to  needy 
statesmen  it  may  be  confidently  affirmed  that  they 
will  be  allowed  to  make  profit  enough  to  pay  their 
taxes  at  least. 

Nothing  in  the  way  of  legislation  can  take  the 
place  of  the  fair  dealing  and  intelligent  agent.  He 
and  he  only  is  the  final  solution  of  the  whole  problem. 


CHAPTER  XIII. 


CLASSIFICATION  OF  RISKS. 

This  is  deciding  upon  the  comparative  probabil- 
ity of  loss  in  the  different  kinds  of  buildings,  etc., 
which  companies  are  called  on  to  insure.  It  is  based 
upon  long  experience  and  careful  observation.  In 
each  policy,  or  in  the  application  therefor,  is  an  ac- 
curate description  of  the  property  insured.  These 
descriptions  have  been  sorted  over  and  classified  and 
a record  of  the  losses  in  each  class  has  been  faith- 
fully kept.  The  process  has  been  going  on  for  a cen- 
tury or  more. 

The  number  of  risks  taken  into  account  is  enor- 
mous, so  great  that  according  to  the  well  known  law 
of  averages  the  results  may  be  considered  certain 
and  positive.  They  furnish  a reliable  basis  for  busi- 
ness computations.  Insurance  companies  are  per- 
fectly safe  in  using  them  in  calculating  their  table  of 
rates.  Were  there  not  some  such  law  of  average  no 
Insurance  would  be  possible,  any  attempt  to  furnish 
indemnity  would  be  but  the  boldest  gambling.  What 
this  law  actually  is  no  one  knows,  nor  how  it  works, 
only  that  it  actually  exists.  So  the  trees  in  the  forest 
seem  to  be  placed  purely  by  chance,  yet  every  sur- 
veyor has  learned  that  they  are  located  by  some  law, 
he  knows  not  what,  and  that  the  number  of  trees  to 

234— 


OF  MUTUAL  INSURANCE 


286 


the  acre  practically  limits  the  length  of  the  straight 
line  he  can  see.  In  fact  there  seems  to  be  no  such 
thing  as  chance  in  the  universe,  if  only  a sufficient 
number  of  instances  are  taken,  certainty  will  result. 
This  holds  true  in  the  case  of  fires. 

ILLUSTRATIONS. 

Now  as  to  risks.  A business  block  in  the  ordin- 
ary small  town  will  illustrate.  The  corner  building, 
a brick,  is  exposed  on  one  side  by  the  next  building, 
on  the  other  is  the  open  street.  If  that  street  is 
eighty  feet  wide,  there  is  very  little  probability  that 
a fire  would  cross  it.  The  exposure  would  hardly 
be  considered.  If  the  street  is  only  fifty  feet  wide 
there  is  a chance  that  a blaze  on  the  other  side  might 
set  the  corner  building  on  fire  and  there  would  be  an 
extra  risk  which  would  be  charged  for.  Again,  if  in 
the  side  wall  of  the  building  under  consideration 
were  several  windows,  in  the  lower  and  second 
stories,  the  risk  would  be  greater  than  if  there  were  a 
solid  brick  wall.  If  the  building  were  frame  the  ex- 
posure would  be  enormously  increased,  and  a frame 
block  would  make  it  still  worse,  so  much  so  that  the 
annual  cost  of  insuring  such  a structure  with  its  con- 
tents would  go  far  towards  paying  the  interest  on 
the  cost  of  a brick  or  stone  building. 

Again  in  a brick  block  each  building  is  exposed 
to  danger  from  the  other.  If  the  walls  between  the 
buildings  are  only  twelve  inches  thick,  they  will  not 
be  safe,  but  if  they  are  sixteen  or  twenty  four  inches 
thick  they  will  be  effective.  A wall  three  feet  high 


236 


A HAND  BOOK 


above  the  roof  reduces  the  risk  much  below  what  it 
would  be  without  it.  The  roof  itself  is  to  be  consid- 
ered. If  of  shingles,  it  is  much  more  likely  to  take 
fire  than  if  of  metal  or  slate.  The  companies  would 
raise  or  lower  the  rate  accordingly.  The  internal 
structure  of  the  block  is  to  be  considered.  The  thick- 
ness of  the  walls  has  been  alluded  to,  are  these  walls 
solid  or  are  there  doors  from  one  building  to  an- 
other? Is  there  a stairway  for  each  building  or  does 
one  stairway  answer  for  two  or  three  buildings.  How 
are  the  openings  protected?  If  by  common  doors 
the  danger  is  materially  increased,  if  the  doors  are 
standard  fire  proof  constructions,  the  increase  is 
very  little.  Then  the  heating  system  comes  in,  the 
telephone  wires  and  no  end  of  complications  beside, 
before  the  risk  on  the  building  is  fully  and  finally  de- 
cided so  far  as  its  own  construction  and  exposure  are 
concerned. 

FIRE  DEPARTMENTS. 

Then  there  is  the  probability  of  extinguishing 
fire.  The  water  supply  must  be  taken  into  account. 
If  there  are  city  water  works,  plenty  of  apparatus, 
a paid  fire  department,  the  probability  of  a conflag- 
ration is  reduced.  If  one  or  more  of  these  may  be 
absent,  then  the  danger  increases.  In  “unwatered” 
towns  the  risk  is  much  greater. 

CONTENTS. 

The  contents  of  the  buildings  must  also  be  looked 
after.  “Preferred  stocks,’ ’ groceries,  general  mer- 
chandise, etc.,  do  not  increase  the  rates,  but  most 


OF  MUTUAL  INSURANCE 


237 


manufacturing  does.  The  number  of  tenants  has  an 
influence  on  the  risk  as  well  as  who  they  are.  The 
proprietor’s  family  would  not  generally  be  held  to 
increase  a risk,  but  it  may  be  otherwise  with  a tenant. 

The  contents  of  the  building  also  have  their 
ratings.  These  depend  on  the  probability  of  their 
taking  fire  and  also  on  the  probability  of  being  in- 
jured by  water.  Then  the  probability  of  getting  the 
stock  out  in  case  of  fire  is  an  important  factor.  A 
stock  on  the  ground  floor  which  is  easily  handled  is 
much  less  liable  to  be  a total  loss  than  the  same 
stock  on  the  second  or  third  floor  or  a stock  of  goods 
on  the  ground  floor,  but  too  heavy  to  handle. 

There  is  still  another  matter  to  be  considered, 
the  probability  of  aid  in  case  of  fire.  People  often 
wonder  why  the  town  dwelling  house  and  contents 
get  more  favor  than  the  same  style  of  building  in  the 
country.  The  reason  is  that  in  case  of  fire  in  town 
there  is  a large  force  ready  to  help  put  out  the  fire 
and  save  the  contents  of  the  building,  while  the 
country  dwelling  is  generally  at  a distance  from  all 
such  help  and  is  much  more  often  a total  loss. 

The  probabilities  vary  not  only  in  different 
towns  and  cities,  but  sometimes  in  different  parts  of 
the  same  state.  There  have  been  cities  and  towns 
where  there  was  a law  defying  element  which  rend- 
ered it  unsafe  to  insure  property  and  from  such  the 
Insurance  companies  were  obliged  to  withdraw  en- 
tirely. 

The  work  just  described  is  done  by  men  who 
make  a specialty  of  it.  They  have  cultivated  their 
powers  of  perception  till  they  are  able  to  see  the 


238 


A HAND  BOOK 


dangers  which  increase  the  risks  and  when  they  per- 
suade people  to  remove  the  cause  of  dangers  they  do 
a service  to  the  public.  This  is  often  the  case  with 
defective  electric  wiring.  Ignorant  or  careless  work- 
men leave  dangerous  constructions.  These  the  in- 
spector discovers,  and  threatens  to  rate  the  building 
accordingly  if  they  are  not  made  safe.  Usually  the 
expense  of  this  is  trifling.  So  in  the  case  of  expos- 
ures, a very  small  change  in  the  protection  may  save 
many  dollars  in  Insurance. 

The  agent  should  study  all  these  risks  and  the 
ratings  and  should  think  out  the  reason  for  the  dif- 
ferences. He  should  be  able  to  recommend  changes 
which  will  reduce  the  risk.  Sometimes,  a very  little 
thing  may  make  a great  difference.  An  agent  in- 
specting a building  found  electric  wires  crossing  so 
that  the  risk  was  extra  hazardous.  He  was  quick 
witted  and  taking  a piece  of  discarded  rubber  belt- 
ing he  invented  arrangements  which  removed  all 
danger.  This  is  an  example  for  others  to  follow. 

NO  INCREASE  OF  RATES. 

A mistaken  idea  has  become  current  that  these 
men  combine  to  increase  the  rates.  This  is  incorrect. 
They  do  not  fix  rates,  they  only  carefully  and  accu- 
rately describe  the  property  and  compute  the  prob- 
abilities of  loss  and  leave  the  fixing  of  the  rates  to 
the  various  boards. 

They  have  reduced  rates  instead  of  increasing 
them.  They  are  not  in  the  employ  of  any  company 
but  sell  their  information  just  as  the  mercantile  com- 


OF  MUTUAL  INSURANCE 


239 


panies  sell  theirs.  As  they  sell  their  descriptions 
many  times  over  they  can  afford  to  take  a very  low 
price.  If  each  company  were  obliged  to  get  up  the 
description  for  itself  the  cost  would  he  enormous. 
The  first  list  would  cost  in  the  average  state  any 
where  from  ten  to  twenty  thousand  dollars  and  it 
would  cost  from  three  to  six  thousand  dollars  a year 
to  keep  them  up.  In  the  larger  states  the  cost  would 
he  increased  in  proportion.  No  small  companies 
could  stand  such  an  expense,  they  would  all  he  driven 
out  of  business  or  else  would  be  obliged  to  resort  to 
the  old  practice  of  charging  a survey  fee  as  was  done 
before  this  system  came  into  general  use. 

In  either  case  the  great  companies  would  absorb 
the  business,  and  the  result  would  be  an  immense  fire 
insurance  trust. 

As  was  said  above,  the  classification  of  risks  is 
not  setting  prices  on  indemnity.  That  work  is  done 
by  the  local  boards  composed  of  the  agents  of  the 
fire  insurance  companies.  Occasionally  companies 
do  not  go  into  these  boards  but  fix  their  own  rates. 
These  are  known  as  non-board  companies.  There 
are  such  companies  doing  business  in  nearly  every 
vicinity.  They  generally  use  the  same  classification 
as  the  others. 

It  is  not  possible  to  compile  a list  of  rates  which 
will  apply  everywhere  in  the  United  States.  While  a 
first  class  town  or  city  is  described  in  nearly  the 
same  terms  all  over  the  country,  and  the  same  is  true 
of  a first  class  building,  and  of  the  other  classes  of 
buildings  and  stocks  as  well,  the  actual  rates  as 


240 


A HAND  BOOK 


charged  by  the  companies  vary  widely  in  different 
states  and  sometimes  within  the  same  state,  north- 
ern Michigan  and  northern  Wisconsin  taking  differ- 
ent rates  from  the  southern  portion  of  the  same 
states.  Some  of  these  variations  seem  to  be  caused 
by  difference  in  climate,  the  longer  winters  in  the 
northern  states  causing  greater  risks  from  stoves 
and  furnaces  and  consequently  requiring  advanced 
rates.  In  other  regions  the  increased  hazard  from 
prairie  or  forest  fires  has  to  he  charged  for,  while  in 
some  portions  of  the  country  an  uneasy  social  condi- 
tion causes  hazards  which  must  be  taken  into  ac- 
count. Nearly  everywhere,  however,  the  local  rates 
have  become  tolerably  well  known  and  it  is  safe  to 
follow  them  till  experience  shows  where  they  can  be 
changed  for  the  better. 

THE  MUTUAL  PROBLEM. 

With  Mutuals  the  problem  is  to  ascertain  the 
cost  of  each  class  in  each  company  in  order  that 
equitable  rates  may  be  charged.  For  example,  tak- 
ing a farm  dwelling  house  as  a basis  what  should  be 
the  advance  or  deduction  on  other  classes  of  prop- 
erty. It  will  be  found  by  experience  that  the  books 
of  different  companies  will  show  very  different  fig- 
ures even  in  the  same  states.  The  only  way  to  do 
exact  justice  in  these  matters  is  to  keep  a book  ac- 
count with  each  class  of  property  insured  and  to  ad- 
just the  rates  accordingly.  In  this  way  it  will  be 
possible  to  furnish  Insurance  at  cost,  which  is  the  end 
and  object  of  every  Mutual  fire  and  storm  Insurance 
company. 


F.  J.  MARTIN,  SEATTLE,  WASH. 

F.  J.  Martin  is  a yonng  man  of  force  and  push.  For  a time 
he  was  connected  with  the  Oregon  Fire  Relief  Association, 
later  he  won  distinction  in  the  Mutual  business  at  Seattle  as  the 
“push"  of  the  Northwestern  Mutual  Fire  Association,  now  con- 
nected with  the  National  Association  of  Factory  Mutual  Insur- 
ance Companies.  The  statistics  furnished  for  the  Manual  will  be 
sufficient  proof  that  Mr.  Martin  is  one  of  the  best  informed  men 
in  the  country. 


L.  R.  WELCH,  FITCHBURG,  MASSACHUSETTS. 

Mr.  Welch  is  the  secretary  of  the  Fitchburg  Mutual  Fire  In- 
surance Company.  In  this  position  he  has  been  pre-eminently 
successful.  He  has  an  abundant  supply  of  that  Yankee  shrewd- 
ness, which  recognizes  a good  thing  when  it  sees  it.  and  is  at  the 
same  time  cautious  enough  not  to  disregard  old  methods  simply 
because  they  are  old,  or  to  adopt  new  methods  just  for  the  nov- 
elty. 


OF  MUTUAL  INSURANCE 


241 


Every  agent  is  occasionally  obliged  to  measure 
the  distance  between  buildings.  The  most  accurate 
method  is  by  chain  or  rod.  These  are  seldom  at  hand. 
‘ ‘ Stepping  off ’ ’ is  the  method  usually  adopted.  The 
natural  step  used  in  ordinary  walking  varies  but 
very  little,  and  one  can  easily  learn  how  many  steps 
are  required  for  twenty,  fifty  or  a hundred  feet, 
etc.  After  a little  practice,  a man  should  be  able  to 
step  off  a hundred  feet  with  an  error  of  not  more 
than  three  or  four  inches.  But  if  he  tries  to  make 
paces  of  three  feet  each  the  error  will  probably  be 
several  times  that  amount.  And  when  using  the  nat- 
ural step  no  one  will  be  able  to  see  that  measure- 
ments are  being  made. 

DEFECTIVE  CHIMNEYS  AND  FLUES. 

These  are  frequent  causes  of  fires  in  buildings, 
being  outclassed  only  by  ‘ ‘ accidental ’ 9 and  “un- 
known.” And  yet  all  such  fires  could  be  prevented 
by  the  exercise  of  a little  care.  If  chimneys  are 
properly  built  they  will  remain  safe  indefinitely. 
Whenever  possible  chimneys  should  rest  on  the 
ground.  If  supported  by  a bracket  or  floor,  the  wall 
to  which  the  bracket  is  attached  or  the  floor  under 
the  chimney  should  be  supported  in  such  a way  that 
it  cannot  possibly  settle.  The  chimney  should  have 
no  support  whatever  above  its  base.  It  must  not  rest 
upon  the  floors  or  upon  the  roof  or  be  in  any  way 
fastened  to  them.  If  it  is,  it  will  be  sure  to  draw 
15 


242 


A HAND  BOOK 


apart  when  the  building  settles  as  it  assuredly  will. 
Nearly  all  defective  chimneys  are  defective  from 
this  cause. 

Where  the  chimney  goes  through  the  roof  the 
opening  should  be  large  and  the  flashing  should  he  of 
soft  tin.  Then  when  the  roof  or  the  chimney  settles, 
the  tin  will  bend  and  there  will  be  no  break  in  either 
tin,  chimney  or  roof.  Chimneys  are  sometimes  built 
with  a projecting  brick  at  each  floor  and  at  the  roof. 
An  extra  rate  should  be  charged  for  these.  The 
breaks  in  these  chimneys  occur  where  they  cannot 
be  seen.  The  bricks  rest  upon  the  floor  and  the  break 
takes  place  just  under  them  between  the  floor  and  the 
ceiling  below. 

Holes  for  stovepipes  should  be  made  with  thim- 
bles and  the  flue  stops  should  be  so  fastened  that 
they  cannot  be  blown  out.  Sometimes  the  artist  who 
does  the  wall  papering  covers  the  stove  pipe  hole  and 
forgets  to  put  back  the  flue  stop  and  collar.  Where 
there  is  more  than  one  hole  in  a chimney  this  needs 
looking  after. 

Chimneys  should  be  cleaned  out  frequently.  Oth- 
erwise soot  will  accumulate  until  some  windy  day 
it  will  take  fire  and  there  will  be  a veritable  volcano 
of  sparks  and  probably  a fire  in  consequence. 

If  chimneys  are  smoothly  plastered  inside,  so 
much  the  better.  They  will  draw  better,  are  much 
easier  cleaned  and  are  far  safer  as  they  are  much 
less  liable  to  crack. 


OF  MUTUAL  INSURANCE 


243 


THE  MATCH. 

The  modern  parlor  match  is  exceedingly  danger- 
ous, so  much  so  that  its  sale  has  been  prohibited  in 
New  York  City  and  perhaps  elsewhere.  It  scatters 
sparks,  or  worse  yet,  the  whole  head  flies  off,  setting 
fire  to  whatever  it  falls  upon.  As  no  others  can  he 
had  in  most  places,  these  must  of  necessity  be  used. 
They  should  be  kept  out  of  the  reach  of  children.  By 
no  means  allow  them  to  be  scattered  all  over  the 
house,  if  one  is  dropped  upon  the  floor  it  should  not 
be  left,  but  picked  up.  There  is  something  in  matches 
which  attracts  mice  and  rats ; see  that  they  are  kept 
out  of  reach  of  these  animals.  People  who  habitually 
carry  matches  should  use  pocket  match  boxes.  Tin 
boxes  are  preferable  for  keeping  matches,  though 
any  box  will  answer  if  it  is  in  a safe  place  and  no  box 
is  good  in  the  hands  of  careless  people. 

STOVES,  ETC. 

Stoves  should  not  be  close  to  woodwork  and  the 
floor  should  be  protected  with  zinc  or  by  some  other 
effectual  method.  The  pipes  should  go  directly  into 
the  chimney  if  possible.  If  they  pass  through  parti- 
tions they  should  be  enclosed  in  tubes  giving  good  air 
space  around  the  pipe.  A double  tube  (the  pipe  be- 
ing the  inner  circle)  will  make  them  much  safer. 
These  tubes  should  be  well  ventilated.  The  pipes 
should  also  be  well  wired  and  fastened,  so  that  there 
will  be  no  possibility  of  them  coming  apart  or  fall- 
ing down.  When  the  pipe  is  not  too  long  it  is  well  to 
rivet  the  whole  into  one  piece.  Long  pipes  may  be 
riveted  in  sections. 


244 


A HAND  BOOK 


The  make  of  the  stove  is  important.  The  doors 
should  have  latches  which  will  hold.  Sometimes  a 
burning  stick  of  wood  or  lump  of  coal  in  the  stove 
rolls  over  against  the  door.  If  the  latch  is  imperfect, 
it  may  let  the  door  open  and  the  fire  may  fall  out 
upon  the  floor.  Sometimes  such  doors  may  be  blown 
open  by  an  explosion  of  gas  in  the  stove.  The  open- 
ings for  cleaning  out  the  base  of  the  stove  should  be 
closed  by  a cover  which  can  be  latched  or  buttoned, 
so  that  it  cannot  be  blown  out,  and  the  pipe  should 
be  securely  fastened  to  the  chimney  for  the  same 
purpose. 

Ashes  should  be  put  in  metal  receptacles  and  al- 
lowed to  stand  till  they  are  thoroughly  cool  before 
they  are  finally  disposed  of.  Wood  ashes  are  some- 
times kept  in  the  cellar.  If  so  they  should  not  be 
kept  in  wooden  boxes  or  bins.  They  occasionally  re- 
heat, especially  when  there  is  much  unburned  mater- 
ial mixed  with  them. 

A black  substance  like  gas  tar  will  condense  in 
pipes  which  are  out  of  doors  or  at  a distance  from 
the  stove.  It  corrodes  the  iron  and  combines  with  it 
very  rapidly,  and  while  the  pipe  retains  its  shape,  it 
becomes  combustible  and  if  the  soot  within  takes  fire 
it  will  burn.  To  test  stove  pipes  for  this  danger  tap 
them  lightly  with  a small  hammer.  The  sound  will 
indicate  the  condition  of  the  pipe  and  if  it  is  much 
corroded  the  hammer  will  go  through  the  iron. 
Where  there  is  a liability  to  this  danger,  the  stove 
pipes  should  be  renewed  at  least  once  a year. 


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Especial  attention  is  called  to  this  matter.  A 
stovepipe  may,  on  the  outside,  appear  as  good  as 
new  but  may  be  corroded  on  the  inside  till  the  orig- 
inal metal  is  entirely  gone.  The  only  safe  way  is  to 
test  all  stovepipes  frequently. 

INSPECTION  BY  FIREMEN. 

Inspection  by  firemen  differs  from  Insurance 
inspection  in  disregarding  classification,  a matter  to 
which  the  average  fireman  pays  but  little  attention. 
His  efforts  are  directed  to  ascertaining  where  fires 
are  likely  to  break  out,  and  to  removing  the  causes 
of  danger.  He  looks  first  at  the  outside  of  the 
building,  is  it  neat  and  in  good  order  ? How  are  the 
surroundings?  Where  are  the  ashes  kept?  What 
are  the  exposures  ? Are  the  chimneys  above  the  roof 
in  good  order  or  is  the  smoke  pouring  out  through 
Cracks?  How  is  the  roof  secured  to  the  chimney? 
If  by  flashing,  is  it  in  good  condition?  If  there  are 
chimney  caps,  are  they  well  secured?  Are  the  chim- 
neys high  enough  to  keep  the  sparks  clear  of  the 
roof  I How  are  the  windows,  and  shutters  or  screens  ? 
Can  a draft  through  the  house  be  shut  off  if  neces- 
sary? Where  is  the  water  supply  in  case  of  fire? 
How  are  the  foundations  constructed? 

THE  CELLAR. 

Noting  carefully  all  these,  the  fireman  next  goes 
inside  and  beginning  with  the  cellar,  examines  the 
house,  room  by  room.  Is  the  cellar  neat  and  clean 
or  is  it  a receptacle  for  old  rubbish?  Is  the  coal  oil 


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kept  there?  The  gasoline?  Are  there  paints,  oils, 
turpentine,  etc.  ? Is  there  a pile  of  greasy  rags  liable 
to  cause  spontaneous  combustion?  How  is  the  cellar 
lighted?  If  it  is  necessary  to  use  lamps  are  there 
shelves  or  brackets  on  which  to  put  them,  or  must 
they  be  carried  around  ? Do  the  chimneys  run  down 
through  the  cellar,  and  if  so  are  the  openings  proper- 
ly secured?  Are  the  chimneys  sound  and  solid  where 
they  pass  through  the  floor?  If  there  is  a fireplace 
is  it  so  secured  that  burning  soot,  etc.,  falling  down, 
cannot  roll  out  upon  the  floor  and  set  things  on  fire? 

TOE  FIRST  FLOOR. 

Next  comes  the  first  floor.  Are  the  stoves  set 
upon  zinc  or  some  other  non-conductor  to  prevent 
setting  fire  to  the  floor?  How  far  are  they  from  the 
wall  ? Have  they  dampers  in  the  pipe  ? Do  the  latch- 
es on  the  doors  hold  them  shut,  or  do  they  fly  open 
easily?  Are  they  liable  to  blow  open?  Is  the  small 
door  for  cleaning  out  the  back  part  fastened  proper- 
ly or  is  it  left  loose?  What  kind  of  fuel  is  used? 
Are  the  stoves  kept  clean,  or  are  they  full  of  soot? 
Are  the  pipes  properly  fastened?  Do  the  joints 
match,  or  are  there  open  places  ? Are  they  wired  to 
the  chimney,  or  are  they  loose  and  liable  to  fall 
down?  Do  they  fit  closely  into  the  hole  in  the  chim- 
ney? Do  they  go  through  floors  and  partitions?  If 
so,  are  they  properly  secured,  and  do  they  pass 
through  suitable  metal  constructions  to  make  them 
absolutely  safe?  Will  they  bear  a blow  from  a small 
hammer  or  are  they  rusted  and  rotten?  How  about 


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stove  pipe  holes,  are  they  furnished  with  thimbles? 
When  not  in  use  are  they  closed  with  flue  stoppers 
which  cannot  come  to  pieces  and  blow  out?  Is  the 
stove  pipe  hole  in  the  parlor  closed  with  a flue  stop- 
per, or  has  the  wall  paper  been  pasted  over  it  and 
left— and  forgotten?  How  are  the  chimneys  where 
they  pass  through  the  floor  ? Are  there  any  cracks  ? 
Do  they  rest  on  the  floor  or  are  they  sufficiently  free 
that  unequal  shrinkage  will  cause  no  damage?  Are 
those  which  rest  on  brackets  solidly  constructed^ 
Where  the  pipes  enter  from  below  is  there  a plate  of 
iron  or  stone  to  make  sure  against  cracking  or  other 
accident? 

What  sort  of  lamps  are  used  and  where  are  they 
kept?  Are  they  bracket  lamps  and  if  so,  are  they 
where  the  curtains  can  blow  against  them?  Are  the 
larger  coal  oil  lamps  used  ? The  gasoline  lamps  ? Is 
gas  used,  if  so  are  the  pipes  solid  and  sound  and  ac- 
cessible in  case  of  leak?  If  electricity,  are  the  wires 
properly  insulated  ? Is  there  any  place  where  water 
running  down  in  a storm  can  reach  the  wires  and 
make  a short  circuit?  Is  the  telephone  wire  ground- 
ed against  lightning?  Are  there  lightning  rods  on 
the  house  and  are  they  in  good  condition?  Where  are 
the  gasoline  and  coal  oil  kept?  Is  artificial  light 
kept  away  from  them?  What  kind  of  matches  are 
used  ? Are  they  out  of  reach  of  rats  and  mice  ? Can 
the  children  get  at  them?  Do  they  use  coal  oil  to 
kindle  fires?  Where  is  the  gasoline  stove  and  what 
condition  is  it  in  ? Are  there  inflammable  substances 


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about?  Are  the  cobwebs  swept  down?  Are  the  eaves 
troughs  kept  free  of  leaves  and  sparrows’  nests? 

THE  UPPER  STORIES. 

The  inspection  of  the  upper  stories  is  like  that 
of  the  first  floor  as  far  as  it  goes.  The  chimneys 
should  be  carefully  examined  for  cracks,  the  stove- 
pipe holes  thoroughly  inspected  and  the  flue  stops  as 
well.  This  is  more  important,  if  possible,  than  are 
the  lower  floors,  for  in  case  a chimney  burns  out  or 
there  is  an  explosion  and  the  flue  stops  fail  to  confine 
it,  a fire  might  ensue  which  would  probably  get  be- 
yond control  before  it  was  discovered. 

If  there  is  a garret,  what  shape  is  it  in?  Look 
around  the  edges  and  see  what  is  stored  away  there, 
is  there  a bundle  of  oil  shades,  a suit  of  greasy  over- 
alls, or  anything  else  liable  to  set  itself  on  fire  ? What 
is  the  condition  of  the  chimney?  Is  it  fastened  to  the 
roof  so  that  it  rests  upon  it  ? Is  the  mortar  sound  or 
are  there  cracks  ? 


BAD  CONSTRUCTIONS. 

In  some  story  and  a half  buildings  the  second 
story  is  made  by  running  scantling  up  a few  feet 
above  the  floor,  then  following  the  rafters  and  put- 
ting in  a ceiling  overhead  in  the  center.  Sometimes 
this  ceiling  has  no  opening.  Where  this  is  the  case, 
it  should  be  insisted  on  that  an  opening  be  made  so 
that  the  chimney  can  be  inspected  where  it  passes 
through  the  roof.  In  one  story  buildings  there  is 
sometimes  a worse  construction.  The  chimney  is 


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built  on  the  joists  overhead  and  at  one  end  to  have 
better  support.  The  stovepipe  is  then  put  in  position 
and  the  lathing  and  plastering  completed  so  that  the 
pipe  is  actually  built  in  and  there  is  no  way  of  getting 
into  the  space  above  the  ceiling  to  inspect  the  pipe  or 
chimney.  Such  a risk  should  be  declined  until  the 
defect  is  remedied. 

This  sketches  an  ordinary  inspection.  And  in 
the  average  of  country  dwellings  in  over  fifty  of 
every  hundred  the  firemen  will  find  something  to 
remedy.  If  the  owners  of  dwellings  could  be  induced 
to  inspect  their  premises  every  spring  and  fall  after 
stoves  are  taken  down  or  put  up,  there  would  be  a 
large  reduction  in  fire  waste  and  a corresponding 
diminution  in  expense. 

EXCEPTIONAL  CASES. 

People  speak  of  the  New  York  fire,  the  Boston, 
Chicago  and  Baltimore  fires  as  exceptional  occur- 
rences, as  dangers  to  which  they  themselves  are  not 
exposed.  But  those  who  suffered  in  these  great  dis- 
asters talked  in  the  same  way  before  the  conflagra- 
tion came.  Even  when  the  fire  broke  out  there  was 
at  first  but  little  alarm.  Not  till  hours  or  days  had 
passed  was  the  extent  of  the  damage  realized. 

Nor  are  unusual  and  unexpected  destructions 
confined  to  fire  waste.  The  sea  is  swept  by  gales  and 
the  list  of  vessels  wrecked  and  vessels  never  heard 
from  surpasses  all  previous  records.  A stream  is 
bridged.  The  structure  is  placed  above  the  high- 
water  mark  of  the  oldest  inhabitant.  But  some  day 
the  rains  come  and  the  bridge  goes  down  the  stream. 


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The  hailstorm  or  tornado  records  show  that 
within  the  areas  where  these  storms  prevail,  for 
twenty,  thirty  or  even  forty  years,  certain  tracts  of 
land  have  been  exempt,  and  the  average  loss  has 
been  below  a certain  percent.  At  great  expense  all 
this  has  been  tabulated  and  mapped,  but  the  informa- 
tion so  gained  is  sooner  or  later  set  at  naught  by  the 
exceptional  season. 

These  occurrences  must  be  taken  into  account  if 
safe  indemnity  is  to  be  furnished.  Every  one  of  the 
great  fires  mentioned  above  bankrupted  Insurance 
companies  which  had  unimpaired  capital  and  good 
reserves,  and  which  were  considered  as  out  of  reach 
of  all  dangers.  So  with  Insurance  against  storms. 
The  cases  are  parallel. 

The  inference  from  these  facts  is  that  the  tables 
which  are  accepted  as  a basis  for  rates  in  the  confla- 
gration and  storm  areas  do  not  cover  a sufficiently 
long  experience,  that  there  is  still  an  unknown  and 
contingent  risk  in  addition  to  what  has  been  consid- 
ered the  average  loss.  The  question  at  once  arises, 
what  shall  be  done  to  provide  for  this  hazard,  for  it 
is  when  these  fearful  devastations  take  place  that  in- 
demnity is  most  urgently  needed.  In  the  case  of 
storms,  as  in  other  operations  of  nature,  man  can  do 
nothing  to  reduce  the  hazard.  Those  who  have  given 
the  matter  the  most  consideration  recommend  the  ac- 
cumulation of  a reserve.  Hail  companies  generally 
favor  it,  and  the  plan  will  probably  be  adopted.  The 
scattering  of  risks  is  also  suggested  and  is  evidently 


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261 


a prudent  measure.  Time  is  needed  to  settle  this 
question. 

CONFLAGRATION  RISKS. 

With  conflagration  risks  the  case  is  different. 
Something  can  he  done  to  improve  the  character  of 
the  risk.  Slow  burning  constructions  can  be  adopted. 
Fire  proof  buildings  are  beyond  the  means  of  ordi- 
nary builders  at  present,  but  experiments  now  in 
progress  seem  to  indicate  that  material  may  be  had 
which,  while  not  fire  proof  in  the  strict  sense  of  the 
word,  will  burn  so  slowly  that  fire  can  be  put  out  be- 
fore it  gains  much  headway.  The  style  of  building 
in  vogue  at  present  is  apparently  the  result  of  a com- 
petitive contest  between  architects  as  to  which  can 
produce  a structure  which  will  burn  up  in  the  short- 
est time,  and  in  which  all  were  entitled  to  the  highest 
prize.  The  Iroquois  theater  disaster  in  Chicago, 
hotel  holocausts  in  several  cities  and  other  similar 
occurrences,  are  waking  up  the  public  to  the  necessity 
of  changing  the  methods  of  construction  not  only  for 
the  purpose  of  reducing  the  loss  of  property,  but  for 
the  saving  of  human  life. 

NEW  ENGLAND  MILL  MUTUALS. 

The  example  of  the  mill  mutuals  of  New  Eng- 
land, the  pioneers  in  the  work,  should  be  followed  in 
all  other  lines.  The  fire  waste  is  enormous.  A time 
of  depression,  after  years  of  prosperity,  is  a time  of 
fires,  a conflagration  risk  for  the  local  organizations. 
And  to  prevent  this  should  be  the  study  of  every 


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Mutual  officer  and  policy  holder  in  the  land.  It  is 
much  cheaper  to  guard  against  loss  than  it  is  to  pay 
for  it  after  it  has  occured,  and  this  should  be  the  in- 
spiration of  those  who  are  trying  to  reduce  the  con- 
flagration risks. 

Few  people  who  have  not  given  especial  thought 
to  the  matter  have  any  idea  of  the  useless  fire  waste 
of  the  country.  It  is  probable  that  this  can  be  re- 
duced, and  it  is  not  too  much  to  say  that  if  proper 
means  are  taken  a sum  can  be  saved  annually  equal 
to  one  dollar  and  twenty-five  cents  for  every  inhabi- 
tant of  the  United  States  at  the  very  lowest  estimate. 

SPECIAL  CASES. 

GASOLINE. 

Gasoline  is  exceedingly  inflammable,  and  when 
mixed  with  air  in  the  proper  proportions  is  explosive. 
The  force  of  these  explosions  can  be  estimated  from 
the  fact  that  a pint  of  gasoline  properly  exploded  in 
the  cylinder  of  an  engine  will  furnish  one  horse  pow- 
er for  an  hour,  that  is  it  will  furnish  a force  sufficient 
to  lift  33,000  pounds  60  feet  high  in  an  hour.  The 
result  of  an  explosion  is  generally  the  scattering  of 
burning  gasoline  in  every  direction  and  a destructive 
fire  generally  ensues. 

But  danger  from  gasoline  can  easily  be  avoided. 
First  see  that  all  the  containers,  pipes,  faucets,  etc. 
are  strong  and  air  tight,  and  then  keep  a sharp  look 
out  for  leaks  or  breaks. 

Second,  keep  your  gasoline  up  high  and  out  of 
doors.  The  vapor  of  gasoline  is  heavy  and  will  sink. 


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hence  it  should  never  be  kept  in  a cellar.  Gas  engines 
should  not  exhaust  into  a chimney  but  out  of  doors. 
The  best  place  to  keep  a gasoline  can  is  in  a box  out 
of  doors,  where  the  wind  can  blow  away  all  the  vapor. 
Many  keep  their  gasoline  on  a porch.  This  does  very 
well,  in  fact,  it  will  do  to  keep  it  anywhere  so  that  the 
vapor  can  blow  away. 

Third,  be  careful  about  slops  and  running  over. 
Don’t  fill  your  vessels  or  tanks  too  full.  Sometimes 
when  a stove  tank  is  filled  up  with  cold  gasoline  the 
fluid  expands  as  it  warms  and  then  runs  over.  This 
has  caused  a great  number  of  fires.  But  if  a slop  or 
such  run-over  occurs,  put  out  all  fires  and  lights  at 
once,  wipe  up  the  spilled  gasoline  with  a dry  cloth, 
wipe  it  up  clean,  let  the  air  circulate  a few  minutes 
and  all  will  be  safe  again.  But  whenever  you  are 
drawing  gasoline  or  filling  a tank,  have  no  fires  or 
lights  about.  Should  the  tank  catch  fire  throw  the 
whole  thing  out  of  doors.  You  will  have  time  to  do 
this  if  you  work  quickly. 

Fourth,  look  out  for  the  wind,  especially  when 
you  are  using  more  than  one  burner  or  when  there  is 
another  fire  or  a light  in  the  same  room.  A puff  of 
wind  may  extinguish  a burner.  It  will  cool  off  and 
the  flow  of  gasoline  will  soon  form  a pool  beneath  it. 
As  soon  as  this  extends  below  the  other  burners  an 
explosion  will  take  place. 

With  common  sense  and  common  carefulness 
there  need  be  very  few  accidents  from  gasoline. 

If  gasoline  is  spilled,  wipe  it  up  quickly  with  a 
dry  cloth  and  throw  the  cloth  out  of  doors.  This  is 


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also  the  best  method  in  dealing  with  a small  blaze. 
Flour  or  dry  ashes  thrown  upon  blazing  gasoline  will 
do  as  much  toward  putting  it  out  as  anything  else. 
It  may  also  he  smothered  out  with  a wet  blanket 
large  enough  to  cover  the  whole  blaze,  hut  water 
thrown  upon  it  only  makes  the  matter  worse.  This 
applies  to  kerosene  also. 

COAL  OIL. 

Coal  oil,  though  not  so  explosive  as  gasoline, 
needs  careful  handling,  especially  where  there  is  no 
efficient  system  of  inspection.  Much  of  the  coal  oil 
sold  in  such  localities  is  no  better  than  gasoline.  The 
highest  grade  of  coal  oil  is  not  inflammable  at  ordi- 
nary temperature.  It  will  extinguish  a burning 
match  thrust  into  it  almost  as  quickly  as  water.  But 
such  oil  is  not  generally  obtainable.  Unlike  gasoline, 
at  common  temperature,  coal  oil  gives  off  no  inflam- 
mable vapor,  or  very  little  and  when  ignited,  does  not 
blaze  up  very  quickly.  But  when  heated,  it  becomes 
inflammable.  While  the  great  danger  from  gasoline 
is  not  so  much  in  using  it  as  having  it  around,  the 
great  danger  from  coal  oil  is  in  using  it,  there  being 
very  little  danger  in  having  it  on  hand. 

The  danger  arises  from  breaking  or  upsetting 
of  lamps,  and  the  consequent  flow  of  heated  coal  oil 
which  takes  fire  at  once,  and  also  from  the  liability 
to  overflow,  and  from  the  explosion  of  some  kinds  of 
lamps  and  stoves.  The  German  student  lamp  and 
similar  makes  are  perfectly  safe  with  coal  oil.  The 
ordinary  single  burner  hand  lamp  is  sometimes  up- 


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set  and  broken,  but  it  is  rarely  subject  to  any  other 
accident.  If  made  of  metal  instead  of  glass  it  would 
be  safer. 

LARGE  LAMPS  DANGEROUS. 

But  the  large  lamps,  holding  from  a quart  to  a 
gallon  and  with  wicks  of  corresponding  size  generate 
an  enormous  heat.  Sometimes  this  causes  the  forma- 
tion of  gas  inside  the  lamp  and  the  consequent  pres- 
sure forces  the  oil  up  through  the  wick  faster  than 
the  blaze  consumes  it.  This  catches  fire  and  runs 
down  over  the  body  of  the  lamp  and  heats  it  till  it 
explodes. 

All  coal  oil  burners  should  be  kept  clean.  The 
drip  cup  of  the  student  lamp  should  be  emptied  fre- 
quently and  the  wick  kept  in  good  condition.  No  ac- 
cumulations of  gum  or  filth  should  be  tolerated. 
Lamps  brought  into  a warm  room  from  a cold  one 
should  be  watched  till  they  get  warm.  The  heat 
sometimes  expands  the  coal  oil  more  rapidly  than 
the  wick  takes  it  out,  and  then  it  runs  over  and  makes 
trouble.  Never  set  a lamp  near  a very  hot  stove. 
When  buying  a large  lamp  make  the  dealer  guar- 
antee it  not  to  heat.  After  it  is  taken  home  and  it 
has  been  burning  for  an  hour  or  so,  put  a finger  on 
the  bowl  near  the  burner,  if  it  is  hot  enough  to  be  un- 
comfortable, the  lamp  is  unsafe,  and  should  be  re- 
turned. 

Should  a lamp  take  fire,  throw  it  out  of  doors 
at  once.  Should  coal  oil  be  spilled  and  take  fire, 
smother  it  with  cloths.  Do  not  throw  water  on  it. 
Dry  ashes,  sand,  earth  or  flour  is  splendid  in  putting 


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out  all  kinds  of  fires,  from  gasoline,  coal  oil,  fats, 
turpentine,  varnish,  etc.,  throw  it  on  thick.  Next  to 
this  is  a wet  blanket,  but  as  said  above,  do  not  throw 
water  on  such  a fire. 

LAMPS,  GAS,  GAS  MACHINES,  ETC. 

In  all  lamps  and  other  devices  for  producing 
light  by  combustion,  a gas  is  burned.  This  is  true  of 
the  tallow  candle.  The  heat  of  the  flame  slowly  melts 
the  tallow,  the  wick  draws  this  up  close  to  the  blaze 
where  the  heat  vaporizes  it.  It  is  then  a gas  and 
burns  as  such.  The  main  difference  is  in  the  com- 
plexity of  the  process,  the  distance  between  the  crude 
material  and  the  point  of  combustion  and  the  tem- 
perature at  which  the  tallow,  oil,  or  whatever  it  may 
be  becomes  a gas.  In  the  candle,  and  in  the  wick 
using  lamps  the  whole  process  is  in  contact  with  the 
wick,  while  in  gas  machines  and  many  so  called  lamps 
and  in  gasoline  stoves  the  gas  is  generated  at  one 
point  and  burned  at  another. 

In  the  ordinary  lamp  the  gas  is  generated  at  the 
point  of  combustion  and  the  oil  is  supplied  by  the 
wick.  In  lamps  with  a deep  bowl,  when  the  oil  is 
nearly  exhausted  the  wick  has  to  raise  it  so  far  that  it 
comes  up  slowly  and  the  flame  burns  low,  and  the 
upper  portion  of  the  bowl  becomes  dangerously  hot. 
To  obviate  this  the  student  lamp  was  invented.  The 
burner  is  placed  at  one  end  of  a tube  a few  inches 
long  and  at  the  other  is  the  oil  in  an  inverted  tank. 
As  it  is  consumed  by  the  burner,  bubbles  of  air  travel 
through  the  tube  and  into  the  tank,  releasing  a sup- 


OF  MUTUAL  INSURANCE 


251 


ply  of  oil  as  it  is  needed.  Thus  the  oil  is  always  cool 
and  there  is  no  accumulation  of  hot  gas  in  the  burner. 
Should  the  lamp  be  upset,  the  oil  rarely  runs  out. 
The  burner  exhausts  itself  and  the  flame  dies  out  in 
a few  seconds.  This  is  believed  to  he  the  safest  lamp 
made.  The  same  principle  has  been  adopted  by  the 
makers  of  some  styles  of  gasoline  lamps  but  these  are 
not  safe,  as  gasoline  does  not  work  like  coal  oil. 

There  are  other  methods  of  supplying  the  oil  or 
gasoline;  one  is  by  gravity,  regulating  the  amount 
by  a stopcock,  in  another,  air  pressure  is  furnished 
by  a small  pump.  This  pressure  drives  the  flow  up 
to  the  point  where  it  is  wanted.  Neither  one  is  safe. 

The  use  of  the  wick  has  already  been  explained. 
The  formation  of  the  gas  is  now  to  be  considered. 
When  coal  oil  or  gasoline  is  used  the  gas  is  either 
made  by  heat  or  is  simply  a mechanical  mixture  of 
air  and  vapor.  In  gasoline  lamps,  stoves,  etc.,  the 
burner  is  heated  to  the  proper  point,  the  gasoline  is 
turned  on  and  lighted  and  then  the  burner  keeps  it- 
self hot.  This  gas  must  be  used  very  close  to  where 
it  is  generated. 

When  it  is  desired  to  burn  gas  at  a distance  from 
where  it  is  generated,  as  in  lighting  several  rooms 
from  the  same  generator,  conveying  the  gas  by  a sys- 
tem of  pipes,  the  proper  mixture  of  gasoline  and  air 
is  secured  by  mechanical  means.  There  are  many 
inventions  for  this  purpose  and  the  best  method  of 
discovering  the  defects  of  any  one  is  to  ask  the 
agents  of  another  make.  The  mixed  air  and  gaso- 
16 


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line  which  is  used  in  this  system  sometimes  con- 
denses, but  if  the  pipes  are  so  arranged  that  they 
drain  back  into  the  generator,  this  will  make  hut  lit- 
tle trouble.  But  the  generator  should  he  out  of  doors 
and  in  a brick  or  stone  structure  not  under  ground 
and  not  liable  to  freeze.  The  pipes  and  fixtures 
should  be  carefully  put  up  and  kept  in  order.  If 
there  is  a leak  it  will  betray  itself  by  its  odor. 

ACETYLENE. 

Acetylene  is  an  entirely  different  affair.  It  is 
made  in  practice  by  bringing  water  in  contact  with  a 
substance  known  in  the  market  as  carbide  of  calcium. 
The  gas  is  then  given  off.  There  are  several  patents 
on  machines  for  making  acteylene  but  all  machines 
either  pour  the  water  on  the  carbide  or  put  the  car- 
bide in  the  water.  The  gas  when  it  comes  off  is  caught 
in  the  reservoir  attached  to  the  generating  apparatus 
and  forces  the  water  out.  When  the  water  level  is 
forced  below  the  carbide,  the  production  of  gas 
ceases  till  it  is  drawn  off  and  the  water  rises  and 
again  reaches  the  carbide. 

This  gas  differs  from  gasoline  vapor  in  many 
respects.  It  is  lighter.  While  gasoline  vapor  re- 
mains on  the  floor,  acetylene  ascends  to  the  ceiling. 
It  is  much  more  explosive  in  mixture  with  air  and  a 
much  lower  heat  will  ignite  it.  A glowing  coal  or 
even  a cigar  will  explode  it.  The  generating  appara- 
tus of  gasoline,  if  kept  by  itself,  is  not  dangerous. 
Acetylene  gas  machines  give  off  heat  and  the  appara- 
tus may  become  hot  enough  to  explode.  Gasoline 


OF  MUTUAL  INSURANCE 


259 


will  stand  all  kinds  of  shocks.  Under  pressure,  a 
heavy  shock  will  explode  some  forms  of  acetylene. 
The  generating  apparatus  must  be  handled  with 
much  more  care.  It  is  not  permitted  by  many  com- 
panies. 

The  manufacturers  of  all  lamps  and  gas  ma- 
chines advertise  them  as  “ absolutely  safe.”  This  is 
generally  an  atrocious  falsehood.  There  is  no  such 
machine,  no  such  lamp.  Some  are  only  reasonably 
safe  in  the  hands  of  experts,  others  can  he  managed 
by  ordinarily  careful  people,  but  not  one  is  fire  proof 
or  fool  proof. 

Agents  who  have  had  no  experience  with  gas 
machines  or  gasoline  lamps  should  refer  the  ques- 
tion of  their  use  back  to  headquarters. 

NATURAL  GAS. 

This  gas  should  have  a pressure  regulator  either 
at  the  burner  or  at  the  mains.  Otherwise  it  is  dan- 
gerous and  should  be  uninsurable.  The  flame  of  an 
unregulated  burner  may  be  three  inches  long  at  nine 
o’clock  in  the  evening.  As  the  other  lights  are 
turned  off  the  pressure  may  increase  till  at  one 
o’clock  in  the  morning  the  flame  may  be  two  feet 
long.  Insist  on  regulators. 

Ordinary  incubators  are  not  insurable. 

ELECTRIC  LIGHTING. 

Electricity  is  coming  into  use  everywhere.  It 
is  not  a power  in  itself  but  a mode  of  transmitting 
power  and  also  heat.  What  it  is,  no  one  knows,  and 


260 


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while  something  is  known  about  its  manifestations  it 
is  evident  that  there  is  much  yet  to  learn. 

The  dangers  from  electricity  arise  from  insuf- 
ficient, defective,  or  worn  out  insulation,  overloading 
of  wires,  breaking,  tearing  loose,  and  consequent 
crossing  of  wires,  or  contact  where  there  should  he 
none.  When  a current  is  run  over  a wire  too  small 
for  it,  the  wire  becomes  red  hot,  perhaps  burns  and 
sets  fire  to  everything  near  it.  When  wires  break 
loose  as  when  poles  blow  down  in  a storm  the  cur- 
rents are  liable  to  cause  heat  and  consequent  fire. 

The  efforts  of  builders  to  do  work  too  cheaply 
and  their  use  of  inferior  material  are  the  causes  of 
most  of  the  accidents  which  happen. 

Electric  work  should  be  inspected  by  an  expert 
and  no  inferior  nor  imperfect  construction  should  be 
accepted. 

Properly  put  up  it  is  as  safe  as  any  other,  but  the 
ordinary  agent  should  not  undertake  to  decide  that 
question  himself. 

SPONTANEOUS  COMBUSTION. 

Combustion  is  the  burning  which  takes  place 
when  oxygen  combines  with  some  other  substance. 
The  heat  evolved  appears  to  be  the  same  in  quantity 
whether  this  burning  be  slow  or  fast,  but  the  more 
rapidly  the  oxygen  is  absorbed  the  higher  will  be  the 
temperature.  Most  substances  at  ordinary  tempera- 
tures absorb  oxygen  very  slowly  or  not  at  all.  WTien 
heated,  the  absorption  is  often  rapid  enough  to  raise 
the  temperature  so  much  that  the  process  will  go  on 
of  itself.  Wood  and  coal  are  illustrations. 


OF  MUTUAL  INSURANCE 


261 


There  are  substances  which  absorb  oxygen  with 
sufficient  rapidity  to  develop  heat  and  as  this  heat 
increases  the  absorption  increases  also  till  fire  breaks 
out.  It  is  with  this  kind  of  spontaneous  combustion 
that  insurance  men  are  concerned.  The  most  dan- 
gerous substances  are  the  oils  and  fats.  In  bulk  they 
are  not  liable  to  change  but  when  a large  surface  is 
exposed  to  the  air,  especially  in  warm  weather,  they 
are  sure  to  develop  heat.  This  is  the  reason  that 
greasy  rags,  oily  sawdust,  etc.  so  frequently  cause 
fires.  The  drying  of  some  oils  is  not  evaporation  at 
all,  but  a chemical  combination  with  the  oxygen  of 
the  air.  If  this  combination  takes  place  under  favor- 
able circumstances  the  final  result  will  be  a blaze. 
Hence  the  necessity  of  care  in  regard  to  these  mat- 
ters. 

A somewhat  amusing  account  of  a fire  originat- 
ing in  a greasy  wrapper  taken  from  a ham  and  care- 
lessly thrown  into  a waste  barrel  will  be  found  in  the 
extracts  from  Mr.  Atkinson’s  article  on  Protection 
Against  Loss  by  Fire.  It  shows  how  small  a quantity 
of  greasy  substance  is  necessary  to  start  a fire. 

Oiled  window  shades  are  sometimes  stowed 
away  in  closets.  This  is  never  safe.  If  they  are  to 
be  preserved  they  should  be  hung  up  singly  and 
where  the  air  can  get  to  them.  The  safest  plan  is  to 
burn  them.  Sawdust  is  occasionally  used  to  absorb 
spilled  liquids.  It  should  be  burned  at  once. 

Hay  stowed  away  when  damp  and,  especially 
alfalfa  and  clover,  is  sure  to  heat.  These  frequently 
take  fire,  and  if  they  do  not  they  send  up  a column  of 


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warm  vapor  which  is  an  excellent  conductor  and  at- 
tracts lightning. 

Heaps  of  wood  ashes  will  frequently  reheat. 
They  should  not  he  kept  in  the  cellar  nor  in  wooden 
receptacles. 

Kerosene  products  have  no  affinity  for  oxygen 
and  are  not  liable  to  spontaneous  combustion,  at  least 
so  authorities  claim. 

Axle  grease  is  largely  made  of  petroleum  pro- 
ducts. These  have  no  affinity  for  oxygen  and  do  not 
develop  heat.  Lubricants  composed  wholly  or  in  part 
of  animal  oils  are  dangerous.  Not  long  since  a whole- 
sale drug  store  was  burned.  Investigation  showed 
that  the  fire  developed  in  a box  of  axle  grease.  It  was 
probably  composed  of  animal  oils. 

THERE  WERE  NO  FLAMES. 

How  far  the  liability  of  the  company  extends 
has  been  decided  by  a court  of  the  United  States  as 
follows : 

The  United  States  court  of  appeals  at  St.  Paul  has  handed 
down  an  opinion  rather  novel  but  of  vast  importance  to  insur- 
ance companies,  and  decides  the  question  as  to  when  an  insur- 
ance company  is  liable  for  fires  resulting  from  spontaneous 
combustion. 

The  court  held  that  “fire  is  always  caused  by  combustion, 
but  combustion  does  not  always  cause  fire  and  while  combustion 
may  be  so  rapid  as  to  cause  fire  that  combustion  is  not  fire  until 
actual  flames  appear.’ ’ 

This  opinion  was  handed  down  in  the  case  of  the  Western 
Woolen  Mill  company  of  Topeka  against  the  Northern  Insurance 
company  of  London  which  was  appealed  from  the  federal  court 
of  Kansas  which  had  rendered  an  opinion  in  favor  of  the  insur- 
ance company. 


OF  MUTUAL  INSURANCE 


268 


The  Northern  had  two  policies  of  $5,000  each  on  wool  owned 
by  the  Western  Woolen  mill  which  went  through  the  flood  of 
two  years  ago.  After  the  wool  had  been  under  water  for  eight 
days  it  was  taken  out  and  spread  out  to  dry.  Spontaneous  com- 
bustion set  in  and  while  there  was  a strong  odor  of  smoke  and 
burning  wool,  actual  flames  did  not  appear,  but  the  wool  was 
ruined. 

By  this  decision  the  Woolen  Mill  company  cannot  recover 
under  their  policy. 

In  cases  which  were  too  small  to  be  carried  to  the 
Federal  court  the  local  courts  decided  the  other  way. 

If  that  is  established  as  the  general  rule,  and 
Insurance  companies  are  not  to  be  held  liable  when 
the  property  is  charred  and  there  is  no  visible  fire 
there  will  be  an  additional  reason  for  watchfulness. 

The  loss  in  cases  like  the  above  will  fall  upon  the 
owner  who  will  have  no  recourse. 

The  whole  subject  is  now  under  investigation 
and  much  more  will  be  known  about  it  when  the  ex- 
periments are  concluded. 

TENANT  FARM  RISKS. 

On  rates  to  be  charged  on  property  occupied  by 
tenant  farmers  there  is  no  consensus  of  opinion,  and 
no  rule  of  action.  Some  of  the  old  line  companies 
are  reported  as  adding  fifty  percent  to  the  rate  in 
some  localities,  others  a third  and  so  on.  Among 
Mutuals  there  is  a wide  difference  also,  and  an  equal 
lack  of  system.  Many  ignore  the  fact  of  the  tenancy 
and  charge  the  usual  rate. 

The  question  is  not  simple.  It  is  complicated 
by  several  elements.  There  are  two  men  to  reckon 
with  instead  of  one.  If  either  is  careless,  quarrel- 


264 


A HAND  BOOK 


some  or  heavily  incumbered,  the  hazard  is  increased. 
If  both  are  thus  objectionable  it  should  probably  be 
declined. 

The  character  of  the  tenants  is  of  importance, 
and  this  varies  with  localities  and  surroundings. 
When  real  estate  is  so  high  as  to  shut  out  the  tenant 
from  all  prospect  of  owning  a farm,  the  renters  will 
not  be  first  class  risks  as  a rule.  On  the  other  hand, 
when  land  can  be  had  at  reasonable  prices  many 
young  men  start  out  as  renters  looking  forward  to 
the  time  when  they  shall  have  accumulated  means 
enough  to  make  the  first  payment  on  a home.  Such 
men  are  the  best  of  citizens  and  are  as  good  risks  as 
any. 


RISKY  PROPERTY. 

The  method  of  holding  such  property  by  the 
owner  should  be  considered  also.  If  held  as  an  in- 
vestment it  will  probably  be  occupied  by  a first  class 
tenant  on  a five-year  lease.  But  if  held  for  specula- 
tion only  it  will  be  held  from  year  to  year  and  first 
class  tenants  will  not  touch  it.  If  the  landlord  is 
avaricious  the  risk  is  still  worse,  in  fact  the  rented 
property  of  a skinflint  owner  is  a very  bad  risk. 

Especially  large  and  fine  buildings  are  always 
extra  hazardous.  Along  in  the  eighties  when  the 
craze  for  mortgages  swept  over  the  country  there 
were  an  immense  number  of  costly  buildings  erected 
on  the  western  prairies.  Many  of  the  mortgages 
were  foreclosed  and  the  property  fell  into  the  hands 
of  non-resident  owners.  It  was  rented,  but  the  build- 


OF  MUTUAL  INSURANCE 


265 


in g was  a source  of  expense  instead  of  revenue.  It 
ran  down,  became  dilapidated  and  a huge  bill  of  re- 
pairs loomed  up  in  the  future  when  one  day  it  went 
up  in  smoke  and  the  Insurance  company  paid  for  it. 
That  such  incendiary  fires  have  been  common,  there 
is  strong  suspicion.  In  all  such  cases,  over-large  or 
unused  buildings  of  any  kind  will  prove  dangerous 
risks  and  should  generally  be  declined. 

A flat  advance  of  fifty  percent  on  the  regular 
rate  does  not  seem  just.  There  are  probably  locali- 
ties where  it  is  a fair  average  advance,  but  generally 
it  would  be  too  heavy  on  the  long  leases  to  first  class 
tenants  and  too  light  on  the  class  of  careless  or  un- 
principled landlords,  whose  property  should  be  de- 
clined. 

Nor  would  the  same  rate  fit  any  two  localities. 
Perhaps  the  best  plan  it  to  organize  an  inspection 
division  and  then  rate  each  risk  on  its  merits  invari- 
ably insisting  that  the  company  should  be  notified  in 
case  of  a change  of  tenant. 

Nowhere  is  the  common  sense  and  business  abil- 
ity of  the  agent  of  more  value  to  the  company  than 
in  cases  such  as  these.  He  can  pass  upon  the  merits 
of  each  application  far  better  than  the  home  officer 
and  his  judgment  will  be  good  on  nearly  every  case. 

Neither  the  tenant  nor  the  owner  of  tenant  prop- 
erty must  be  deprived  of  the  privileges  of  Mutual 
Insurance,  but  it  is  generally  conceded  that  the  haz- 
ard on  the  personal  property  of  the  tenant  and  the 


266 


A HAND  BOOK 


buildings  of  the  landlord  would  be  less  if  the  owner- 
ship of  both  were  the  same,  and  some  allowance 
should  be  made  for  this  difference. 

CITIES  AND  TOWNS. 

Cities  and  towns  are  classified  according  to  their 
exposures  and  to  the  means  of  extinguishing  fire. 
It  is  somewhat  remarkable  that  though  the  prevail- 
ing winds  make  a north  and  south  exposure  especial- 
ly hazardous,  people  rarely  build  on  east  and  west 
streets,  except  when  forced  to  by  the  crowding  of 
large  cities.  This  adds  somewhat  to  the  conflagra- 
tion risk,  but  it  cannot  be  helped. 

First  class  cities  are  those  which  have  good  light 
and  water  systems,  efficient  police,  paved  streets  at 
least  seventy-five  feet  wide  in  the  business  portions, 
and  a paid  fire  department.  This  means  that  there 
are  police  to  discover  a fire,  a fire  department  ready 
to  put  it  out,  paved  streets  to  make  it  easy  to  get  the 
engine  to  the  fire  and  plenty  of  water  to  use  when 
the  firemen  get  there.  For  any  deficiency  in  these 
respects  a deduction  is  made. 

The  second  class  cities  must  have  good  water 
supply  with  direct  pressure,  steam  fire  engines,  paid 
and  volunteer  fire  departments,  otherwise  as  in  the 
first  class. 

If  the  city  has  no  water  works  and  only  hand  or 
chemical  engines  and  no  paid  fire  department  it 
drops  to  the  third  class  but  the  business  streets  must 
be  eighty  feet  wide. 


OF  MUTUAL  INSURANCE 


267 


If  there  are  no  engines  or  fire  department  it 
drops  to  the  fourth  class  with  a charge  for  extra  ex- 
posure if  the  streets  are  less  than  eighty  feet  wide. 

The  basis  rate  in  the  first  class  is  usually  in- 
creased ten  cents  on  the  $100  for  the  second  class, 
twenty  cents  for  the  third  class  and  thirty  cents  for 
the  fourth  class.  If  the  streets  are  wider  than  the 
limit  given  above  a small  reduction  is  made,  if  nar- 
rower, an  extra  charge  is  made. 

Buildings  are  variously  classified  in  different 
cities.  Class  A,  is  generally  a brick  or  stone  building 
with  heavy  fire  walls,  all  openings  closed  with  heavy 
iron  shutters,  metal  slate  or  other  fire  proof  roof, 
and  absolutely  no  outside  woodwork  of  any  kind 
whatever.  Absence  of  iron  doors  and  shutters  re- 
duces the  building  to  the  next  class. 

The  ordinary  brick  building  with  shingle  roof  is 
another  class  lower. 

The  next  class  is  the  ordinary  wooden  building. 
This  is  rated  the  highest. 

But  if  it  is  iron  clad  with  metal  roof,  the  rate 
will  be  lower. 

A lower  rate  will  also  be  given  if  the  building 
is  veneered  with  brick  and  has  a metal  or  slate  roof. 

Then  there  is  the  exposure  risk,  the  risk  from 
several  tenants,  the  risk  from  contents  and  the  risk 
from  business  carried  on,  any  of  which  must  be  con- 
sidered. 

HEATING  BUILDINGS. 

Three  methods  are  used— hot  air,  steam  and 
hot  water.  Each  has  its  advocates,  but  from  an  In- 
surance standpoint  there  is  but  little  choice. 


268 


A HAND  BOOK 


Faulty  constructions  are  frequent.  The  fur- 
naces should  be  made  so  that  they  will  not  emit  gas 
or  sparks,  the  doors  and  other  openings  should  be 
secure  against  accidental  opening,  the  chimney 
should  be  large  enough  and  the  draught  good.  Where 
the  furnace  is  built  with  the  house  the  chimney  is 
generally  properly  constructed,  but  when  a furnace 
is  put  in  a house  built  to  use  stoves,  the  chimney 
may  be  too  small. 

The  furnace  itself  may  be  too  small.  Competing 
bidders,  in  their  anxiety  to  get  business,  not  unfre- 
quently  recommend  too  small  plants.  When  a cold 
snap  comes,  the  furnaces  are  over  driven  and  the 
result  is  a fire ; cause, 4 1 overheated  furnace. 9 9 

There  should  be  a clear  space  around  the  fur- 
nace and  in  this  no  rubbish  should  be  allowed  to  ac- 
cumulate. The  best  constructions  are  enclosed  in 
brick  built  on  a solid  foundation,  with  as  few  open- 
ings as  possible.  The  thicker  this  brick  wall  is  the 
safer  and  more  economical  the  furnace  will  be. 

The  chimney  should  rest  on  the  ground,  and  the 
connections  with  the  chimney  should  be  heavy  and  se- 
curely fastened.  They  should  be  as  far  from  the 
joists  overhead  as  space  will  permit,  four  or  five 
feet,  if  possible,  and  then  the  joists  and  flooring 
should  be  protected  by  zinc.  If  it  is  necessary  to 
place  the  chimney  connections  nearer  the  floor  there 
should  be  a double  protectiin  of  tin  or  zinc. 

Many  furnaces  are  placed  in  the  smallest  possi- 
ble space,  with  no  room  around  them  and  close  to 
the  floor  overhead.  Such  hazards  are  excessive. 


OF  MUTUAL  INSURANCE 


269 


The  pipes,  whether  for  hot  air,  hot  water  or 
steam,  should  be  at  least  six  inches  from  any  wood 
work.  The  registers  should  rest  upon  some  non- 
combustible substance  and  not  upon  the  wood.  In  all 
cases  where  the  pipes  in  the  cellar  are  within  a foot 
of  woodwork,  there  should  be  a sheet  of  metal  inter- 
posed. 

It  is  difficult  to  convince  the  ordinary  citizen 
that  hot  air  or  steampipes  can  char  wood  and  start 
a conflagration  but  it  is  a well  demonstrated  fact. 
Even  blood  heat  will  in  time  carbonize  soft  wood. 
Charcoal  has  the  peculiar  power  of  absorbing  gases. 
It  is  upon  this  that  much  of  its  disinfecting  powers 
depend.  When  its  pores  are  filled  with  gases  it  is 
exceedingly  inflammable,  and  steam  heat  has  been 
known  to  ignite  it. 


A RECENT  CASE. 

A recent  case  will  illustrate  the  dangers.  A 
school  house  was  built  in  a western  town.  No  expense 
was  spared  to  make  the  building  as  complete  as  pos- 
sible. A hot  air  furnace  was  put  in.  The  joists  were 
2x12  and  the  tin  hot  air  pipes  were  run  between 
them.  The  registers  were  placed  in  the  wall  and 
rested  on  wooden  supports.  So  confident  were  the 
school  board  that  their  building  was  safe  that  they 
only  took  out  $2,000  Insurance  on  a cost  of  over 
$4,800.  Within  three  months  they  had  a fire.  It 
was  but  small  and  the  loss  was  settled.  But  an  in- 
spector for  the  company  being  in  the  neighborhood  a 
short  time  after  the  fire,  made  an  examination  of  the 


270 


A HAND  BOOK 


building.  He  at  once  discovered  the  hazardous  con- 
dition of  the  heating  apparatus.  On  removing  the 
registers  from  their  places  in  the  side  wall  the  sur- 
rounding wood  work  was  found  to  he  badly  charred. 
The  directors  were  given  thirty  days  to  change  the 
hazardous  construction  or  to  procure  new  Insurance. 
Meanwhile  the  company  only  assumed  liability  for 
fifty  percent  of  the  policy  rates  if  a fire  should  occur. 
There  is  not  the  slightest  doubt  that  the  school  house 
would  have  burned  within  a year,  had  not  the 
changes  been  made. 

But  always  and  everywhere  Insurance  men 
should  be  on  the  lookout  for  wood  in  proximity  to 
heated  objects.  It  will  certainly  char,  and  is  sure  to 
take  fire  if  given  time. 

PREVENTABLE  FIRES. 

The  state  Insurance  superintendent  of  Maine 
has  issued  a carefully  classified  list  of  fires  for  the 
year  1903.  Among  them  the  following  are  found: 
Ashes  28,  burning  out  of  chimney  95,  children  play- 
ing with  matches  38,.  defective  chimneys  and  flues 
257,  mice,  rats  and  matches  6,  sparks  from  chimneys 
76,  sparks  from  match  50,  making  550  out  of  a total 
of  1960.  Other  states  present  similar  figures. 

Nearly  every  one  of  these  fires  could  have  been 
prevented  by  reasonable  care.  It  is  not  difficult  nor 
expensive  to  provide  receptacles  enough  to  hold  the 
accumulations  of  ashes  for  twenty  four  hours.  At 
the  end  of  that  time  they  will  be  cooled  clear  through. 
Coal  ashes  do  not  reheat  and  may  be  emptied  any- 


OF  MUTUAL  INSURANCE 


271 


where.  Wood  ashes  are  still  used  in  many  house- 
holds and  are  often  kept  in  the  cellar.  If  metal  re- 
ceptacles can  be  had  there  is  very  little  danger  in  this 
practice,  if  not,  they  should  be  emptied  on  the 
ground,  not  in  boxes  or  on  a wooden  floor. 

Chimneys  can  be  made  safe.  Some  one  should 
stand  over  the  builders  and  see  that  their  work  is 
properly  done.  The  chimneys  should  be  inspected 
frequently  to  see  if  cracks  develop.  The  flue  stops 
should  be  so  fastened  that  they  cannot  be  blown  out. 
Stove  pipes  should  be  so  fastened  when  they  are  put 
up  that  they  cannot  get  apart  and  fall  down.  If  the 
chimneys  are  kept  reasonably  clean  there  will  be  lit- 
tle danger  from  sparks. 

In  fact,  if  common  sense  and  a little  care  is 
used  the  fire  waste  of  the  country  might  be  reduced 
by  at  least  forty  millions  of  dollars. 

These  figures  are  of  interest  to  Mutuals,  for  it 
is  along  the  line  of  saving  expenses  and  reducing  fire 
waste  that  the  Mutuals  will  do  their  best  work. 

There  is  another  cause  of  fires,  incendiarism  by 
tramps  and  discharged  workmen.  The  tramp  goes 
into  a stable  to  light  his  pipe,  or  to  have  a smoke. 
The  match  spark  smolders  for  a while  and  then  the 
blaze  breaks  out.  An  employe  is  discharged.  Thirst- 
ing for  revenge  he  lays  a plan  to  burn  his  late  em- 
ployer ’s  property  and  carries  it  out  at  the  cost  of  the 
Insurance  company.  There  have  been  times  when 
farmers  dared  not  refuse  the  demands  of  tramps  for 


272 


A HAND  BOOK 


food  lest  their  buildings  should  be  burned.  The 
tramp  evil  is  much  less  than  is  was  but  there  is  still 
too  much  of  it. 


rARM  BUILDINGS. 

In  answering  the  question, ‘ ‘ What  is  it  worth ?” 
both  agent  and  adjuster  are  frequently  called  on  to 
estimate  depreciations.  This  estimate  is  often  a 
question  of  fact,  instead  of  theory.  The  old  fashion- 
ed farm  dwelling  with  slate  roof,  built  with  heavy 
timbers  used  in  days  gone  by,  if  taken  proper  care 
of  is  as  good  for  all  practical  purposes  as  it  ever  was. 
Yet  changes  of  style,  relocations  of  market  towns 
and  of  country  roads  may  have  rendered  it  unsalable 
and  a bad  risk  at  even  half  its  cost.  But  otherwise, 
it  may  be  worth  as  much  as  ever  for  the  depreciation 
of  such  a building  is  almost  nothing. 

These  dwellings  are  usually  not  as  solidly  built 
as  the  houses  of  half  a century  ago,  and  are  liable 
to  be  racked  by  heavy  winds.  The  foundation  also 
has  much  to  do  with  the  matter.  A solid  foundation 
resting  on  rock  or  some  stratum  which  does  not  give 
will  add  much  to  the  length  of  life  of  a building.  In 
some  sections  the  surface  is  underlaid  with  a clay 
subsoil  which  swells  with  every  rain  and  never  re- 
sumes its  former  place.  Unless  the  foundations  go 
below  this  the  doors  and  windows  will  need  adjust- 
ing after  nearly  every  rain.  The  twisting  and  wring- 
ing consequent  on  the  changes  in  this  subsoil  weaken 
a building  very  rapidly.  Taking  all  these  matters 
into  consideration  it  is  hardly  possible  to  fix  an  exact 


s.  g.  mead,  McPherson,  Kansas. 

Mr.  Mead  is  a retired  newspaper  man,  having  been  in  the 
business  almost  forty  years.  He  made  a specialty  of  sociological 
studies,  along  the  line  of  fraternal  and  co-operative  organizations 
and  is  an  enthusiastic  advocate  of  Mutual  insurance,  co-operative 
stores  and  all  similar  enterprises. 


J.  B.  HERRIMAN,  DES  MOINES,  IOWA. 

J.  B.  Herriman,  secretary  of  the  Iowa  Mutual  Tornado  Asso- 
ciation, the  largest  concern  of  its  kind  in  the  world,  is  recognized 
as  one  of  the  foremost  figures  in  the  field  of  Mutual  Insurance. 
He  has  been  secretary  of  the  Iowa  Tornado  Mutual  from  its  in- 
ception. and  has  done  more  than  any  other  man  to  build  it  up  to 
its  present  proud  position.  Mr.  Herriman  enjoys  the  confidence 
and  affection  of  his  associates  and  the  respect  of  the  public  to  a 
remarkable  degree. 


OF  MUTUAL  INSURANCE 


173 


figure  for  depreciations.  The  range  is  from  one  to 
three  percent  annually  and  must  be  increased  for  the 
cheaper  class  of  buildings.  Barns,  unless  very 
strongly  framed,  will  depreciate  from  three  to  four 
percent. 

If  the  buildings  have  been  carefully  looked  after 
by  the  owner,  and  have  been  kept  in  good  condition, 
the  amount  expended  in  repairs  may  be  deducted 
from  the  depreciation. 

Buildings  occupied  by  tenants  are  apt  to  run 
down  more  rapidly  than  when  used  by  the  owners 
alone.  The  tenants  have  not  the  interest  in  keeping 
up  the  buildings  and  sometimes  they  are  careless. 

Public  buildings  are  usually  not  as  well  cared 
for  as  they  should  be,  and  ordinarily  will  decrease  in 
value  from  two  to  three  percent  a year. 

HOW  TO  ASCERTAIN. 

The  agents  and  adjusters  will  have  the  best  suc- 
cess in  ascertaining  values  if  they  make  their  own 
tables  of  depreciations.  Every  new  house  in  their 
locality  should  be  carefully  noted,  its  dimensions 
and  cost  taken  down.  From  these  notes  a very  use- 
ful cubic  foot  table  of  cost  may  be  computed.  It  will 
also  be  possible  in  many  cases  to  ascertain  the  orig- 
inal cost  of  old  buildings  and  also  the  date  of  con- 
struction. A fair  estimate  of  present  value  can  often 
be  made  and  from  these  data  the  desired  information 
17 


274 


A HAND  BOOK 


can  be  deducted.  Such  tables  will  be  far  more  useful 
than  any  to  be  found  in  the  books  usually  considered 
authorities  on  the  subject. 

OTHER  BUILDINGS. 

With  the  mercantile  or  manufacturing  buildings 
in  cities  and  towns  use  has  much  to  do.  Heavy  or 
rapid  running  machinery  will  reduce  the  value  of  a 
building  very  rapidly,  especially  if  the  building  is  a 
light  one.  So  will  the  storage  of  heavy  goods.  In  fact 
almost  any  use  for  which  a building  was  not  intended 
causes  extra  wear  and  tear.  Unoccupied  buildings 
depreciate  rapidly. 

But  the  cost  is  not  always  a safe  basis  to  start 
from.  There  are  places  where  the  first  lumber  was 
hauled  in  on  wagons  and  where  the  first  workmen 
received  any  wages  they  were  pleased  to  ask.  After- 
ward, when  railroads  came  in  and  wages  resumed  the 
normal  condition  the  same  buildings  could  have  been 
put  up  at  a fraction  of  their  original  cost.  On  the 
other  hand,  the  advance  in  the  price  of  lumber,  of 
late  years,  may  make  an  old  building  worth  as  much 
as  it  was  when  newly  built. 

In  cities  and  towns,  buildings  and  lots  are  sold 
together  and  without  much  regard  to  cost.  Resi- 
dences bring  prices  according  to  locality.  The  fash- 
ionable part  of  town  is  a high  priced  region.  Much 
frequented  corners  are  also  held  at  high  figures  so 
that  very  little  indication  of  value  of  buildings  is 
furnished  by  sales.  The  whole  question  is  one  of 
careful  observation,  good  judgment,  and  good  hard 
sense. 


OF  MUTUAL  INSURANCE 


275 


DEPRECIATIONS. 

Carpets  will  last  ten  years  in  bed  rooms  with  a 
careful  family.  In  the  parlor  and  living  rooms  they 
will  wear  out  in  four  years  if  the  family  is  large  and 
if  there  is  much  company.  Economical  people  save 
some  expense  by  changing  carpets  from  room  to 
room  as  they  become  worn.  Good  furniture  carefully 
used  will  last  ten  years  on  the  average.  The  parlor 
set,  if  shut  up  in  the  dark,  as  it  sometimes  is,  will 
last  much  longer.  But  it  gets  out  of  style  and  that 
reduces  its  value. 

Country  stores  generally  carry  a mixed  stock. 
Hardware,  groceries  and  staple  goods  depreciate 
rather  slowly.  But  millinery  gets  dirty  and  out  of 
style,  clothing  loses  value  owing  to  change  of  fash- 
ion. Last  year’s  goods  in  any  line  are  at  least  five 
percent  off,  clothing  should  be  discounted  twenty-five 
percent,  millinery  fifty,  queensware  and  crockery 
ten  percent  and  notions  twenty-five. 

These  deductions  will  not  be  too  large. 

FARM  MACHINERY. 

On  the  average,  the  life  of  farm  machinery  is 
five  years.  Steam  boilers,  cookers,  threshers,  trac- 
tion engines  may  all  be  counted  in  at  that.  The 
cause  of  this  rapid  loss  of  value  is,  in  the  first  place, 
that  much  of  this  machinery  is  very  shabbily  made, 
and  secondly,  that  the  people  who  use  it  are  usually 
not  mechanics.  Machinery  is  left  out  of  doors  ex- 
posed to  the  weather.  The  ground  beneath  it  is  water 
soaked,  some  wheels  sink  more  than  others,  the 


S76 


A HAND  BOOK 


whole  thing  may  become  twisted,  the  journals  bind 
and  the  wear  is  enormous.  Of  course  there  are  some 
who  handle  this  machinery  better  but  the  average 
as  above  stated  will  be  found  nearly  correct. 

But  after  all,  the  question  is  not  one  of  rule  or 
theory  but  of  actual  fact,  and  to  ascertain  the  fact  is 
the  question  for  the  agent  and  the  adjuster. 

NEW  DISCOVERIES. 

These  have  an  important  influence  on  classifica- 
tion. An  illustration  is  to  be  found  in  the  use  of  coal 
oil  for  fuel.  It  changes  the  risk  materially,  increas- 
ing the  hazard.  Should  a safe  method  of  feeding  the 
oil  to  the  furnace  be  introduced  then  the  risk  will 
change  and  the  charge  for  the  extra  hazard  may  be 
dropped.  New  materials,  new  chemicals,  all  must 
be  examined,  and  if  found  dangerous  must  either  be 
charged  for  or  made  safe.  The  same  is  true  of  speed- 
ing up  machinery,  it  increases  the  hazard. 

Changes  in  water  supply  must  be  looked  after, 
if  there  is  better  fire  protection  the  risk  is  safer. 

The  introduction  of  new  chemicals  needs  watch- 
ing. Carbon  di  sulphide  is  being  used  for  many  pur- 
poses. It  is  exceedingly  dangerous,  and  should  not 
be  allowed  except  in  minute  quantities.  And  as  time 
passes,  new  changes  and  new  hazards  appear.  There 
is  only  one  safe  plan,  to  be  continually  on  the  watch 
and  to  test  everything  which  is  new. 

It  is  not  necessary  that  each  company  test  every 
article  for  itself.  This  would  be  very  expensive.  A 
joint  arrangement,  such  as  is  made  by  the  New  Eng- 
land Mill  Mutuals,  would  provide  for  this  work  at  a 
very  small  expense. 


CHAPTER  XIV. 

THE  POLICY  AS  A CONTRACT. 

In  making  and  executing  contracts,  fairness 
should  be  kept  in  view.  It  is  possible  to  so  entangle 
an  agreement  with  technicalities  that  it  becomes  un- 
intelligible, and  that  contracts  have  been  drawn  up 
with  a view  to  binding  one  side  and  not  the  other,  is  a 
well  established  fact.  It  is  singular  that  so  many 
cases  come  up  before  the  courts  in  which  contracts 
are  to  be  construed,  that  is,  courts  are  to  say  what 
they  mean.  The  same  is  true  of  the  laws  of  the 
land.  It  is  very  rarely  that  a legislature  succeeds 
in  passing  a law  that  means  what  it  says,  or  says 
what  the  legislature  intended  that  it  should. 

Especially  is  that  true  with  regard  to  restric- 
tive laws  and  statutes  for  the  prevention  of  crime. 
The  records  show  that  it  seems  to  he  next  to  impossi- 
ble to  bring  a case  against  an  important  criminal 
without  making  some  blunder  which  will  cause  it  to 
he  thrown  out  of  court.  Then  when  the  error  is  rec- 
tified and  the  case  finally  comes  to  trial,  the  judge 
or  the  attorney  makes  another  mistake  and  the  whole 
process  is  gone  over  again  and  again  till  the  wit- 
nesses die  or  disappear  and  the  matter  is  dropped. 

—277 


278 


A HAND  BOOK 


POLICIES  MUST  BE  SIMPLE  AND  CLEAR. 

The  Mutuals  should  avoid  all  this.  The  policy 
should  be  simple  and  clear.  No  doubtful  hazards 
should  be  accepted  and  only  men  of  known  good  char- 
acter should  be  received  as  members.  This  needs 
emphasis.  Experience  of  old  companies  shows  that 
the  higher  the  standard  is  raised  the  cheaper  the  In- 
surance. All  descriptions  in  the  application  should  be 
clear  and  accurate.  And  then  when  a fire  occurs  all 
mere  technicalities  should  be  ignored  and  the  loss 
should  be  paid  promptly  and  in  full.  The  character 
of  the  insured  should  be  recognized.  Gross  fraud  or 
palpable  violation  of  the  contract  should  invalidate 
it,  and  such  cases  though  possible,  are  exceedingly 
rare. 

As  one  company  expressed  it,  ‘ 4 When  an  honest 
man  has  paid  for  a thousand  dollars 9 indemnity  and 
a thousand  dollar  loss  occurs,  we  just  pay ; that  is  all 
there  is  to  it.  ’ ’ 


UNILATERAL  CONTRACTS. 

Insurance  contracts  belong  to  the  same  class  as 
bills  of  lading,  rail  road  tickets,  etc.  They  are  some- 
times called  unilateral  contracts,  as  they  are  made  by 
one  side  only.  The  shipper  on  the  railroads  and  the 
policy  holder  in  a joint  stock  Insurance  company 
have  nothing  to  say  about  the  contracts  they  sign. 
The  courts  construe  such  contracts  very  strictly 
against  the  companies.  In  Insurance  cases  the  decis- 
ions have  been  gradually  growing  more  and  more 
rigid,  until,  at  present,  if  a policy  contains  technical 


OF  MUTUAL  INSURANCE 


279 


provisions,  the  courts  often  require  the  company  to 
prove  that  the  policy  holder  had  notice  thereof  before 
they  will  enforce  them. 

The  policy  is  the  written  or  printed  contract  be- 
tween the  insurer  and  the  insured.  It  should  set 
forth  that  contract  fully  and  in  terms  not  liable  to  be 
misunderstood.  One  of  the  great  sources  of  trouble 
between  Insurance  companies  and  their  patrons  is 
the  lack  of  precision  in  filling  out  the  application. 
In  each  contract  should  be  set  forth  the  name  of  the 
contracting  parties.  The  name  of  the  insurer,  that  is 
the  name  of  the  company,  is  usually  printed,  but  the 
name  of  the  insured  is  written  and  care  should  be 
taken  to  see  that  it  is  correct;  no  initials  should  be 
left  out  and  no  names  should  be  abbreviated.  If 
Thomas  M.  Smith  is  insured  the  policy  should  not 
read  ‘ ‘ Tom  Smith.  ” If  it  does,  the  chances  are  that 
it  contains  other  errors  which  will  make  trouble.  It 
must  also  set  forth  the  rate  of  premium  and  the  prop- 
erty insured.  In  writing  numbers  they  should  be 
spelled  out,  single  figures  are  liable  to  be  mistaken. 

DESCRIPTIONS  ACCURATE. 

Descriptions  of  property  should  be  accurate  and 
complete.  Each  description  should  include  the  thing 
described  and  exclude  everything  else.  The  interest 
of  the  insured  should  also  appear  and  if  he  is  not  the 
sole  owner,  his  share  or  interest  should  be  accurately 
described.  If  the  policy  is  made  out  to  a mortgagee, 
the  fact  should  be  plainly  stated.  All  ambiguity  must 
be  avoided. 


260 


A HAND  BOOK 


The  risk  must  be  clearly  stated,  and  also  the 
length  of  time  for  which  the  policy  is  to  run.  As  to 
the  form  of  the  policy  there  is  much  discussion.  It 
has  been  customary  to  issue  policies  containing  num- 
erous exceptions  and  restrictions  printed  in  micro- 
scopic type  with  the  proviso  that  the  violation  of  any 
one  would  render  the  whole  policy  void.  Courts  have 
looked  upon  these  with  disfavor,  and  have  held  that 
these  paragraphs  were,  at  best,  constructive  notice, 
and  have  required  proof,  in  case  of  loss,  that  the  as- 
sured had  actually  read  them  or  that  they  had  been 
pointed  out  to  him.  It  has  also  been  ruled  that  the 
policy  was  a contract  which  the  assured  had  no  hand 
in  making,  he  was  obliged  to  accept  it  as  it  was  of- 
fered to  him  or  go  without  Insurance.  In  all  such 
cases  the  courts  will  do  equity  regardless  of  the  pro- 
visions of  the  contract.  An  effort  has  been  made  to 
avoid  these  evils  by  formulating  a standard  policy 
to  be  printed  in  type  of  not  less  than  a given  size. 

THE  STANDARD  POLICY. 

The  following,  taken  from  the  laws  of  New  York, 
is  an  example : 

INSURANCE  COMPANY  OF 

In  consideration  of  the  stipulations  herein  named  and  of 

dollars  premium,  does  insure for  the 

term  of , from  the day  of 190. ., 

at  noon,  to  the  day  of  190..,  at  noon, 

against  all  direct  loss  or  damage  by  fire  except  as  hereinafter 
provided, 

To  an  amount  not  exceeding  dollars,  to  the 

following  described  property  while  located  and  contained  at 
described  herein,  and  not  elsewhere,  to  wit: 


OF  MUTUAL  INSURANCE 


281 


This  company  shall  not  be  liable  beyond  the  actual  cash 
value  of  the  property  at  the  time  any  loss  or  damage  occurs* 
and  the  loss  or  damage  shall  be  ascertained  or  estimated  accord- 
ing to  such  actual  cash  value,  with  proper  deduction  for  depre- 
ciation however  caused,  and  shall  in  no  event  exceed  what  it 
would  then  cost  the  insured  to  repair  or  replace  the  same  with 
material  of  like  kind  and  quality ; said  ascertainment  or  estimate 
shall  be  made  by  the  insured  and  this  company,  or,  if  they  differ, 
then  by  appraisers,  as  hereinafter  provided,  and  the  amount  of 
loss  or  damage  having  thus  been  determined,  the  sum  for  which 
this  company  is  liable  pursuant  to  this  policy  shall  be  payable 
sixty  days  after  due  notice,  ascertainment,  estimate,  and  satis- 
factory proof  of  the  loss  have  been  received  by  this  company,  in 
accordance  with  the  terms  of  this  policy.  It  shall  be  optional, 
however,  with  this  company  to  take  all,  or  any  part,  of  the  arti- 
cles at  such  ascertained  or  appraised  value,  and  also  to  repair, 
rebuild  or  replace  the  property  lost  or  damaged  with  other  of 
like  kind  and  quality  within  a reasonable  time  on  giving  notice, 
within  thirty  days  after  the  receipt  of  the  proof  herein  re- 
quired, of  its  intention  so  to  do;  but  there  can  be  no  abandon- 
ment to  this  company  of  the  property  described. 

This  entire  policy  shall  be  void  if  the  insured  has  concealed 
or  misrepresented,  in  writing  or  otherwise,  any  material  fact  or 
circumstance  concerning  this  insurance  or  the  subject  thereof; 
or  if  the  interest  of  the  insured  in  the  property  be  not  truly 
stated  herein;  or  in  case  of  any  fraud  or  false  swearing  by  the 
insured  touching  any  matter  relating  to  this  insurance  or  the 
subject  thereof,  whether  before  or  after  a loss. 

This  entire  policy,  unless  otherwise  provided  by  agreement 
indorsed  'hereon  or  added  hereto,  shall  be  void  if  the  insured 
now  has  or  shall  hereafter  make  or  procure  any  other  contract 
of  insurance,  whether  valid  or  not,  on  property  covered  in 
whole  or  in  part  by  this  policy;  or  if  the  subject  of  insurance 
be  a manufacturing  establishment  and  it  be  operated  in  whole 
or  in  part  at  night  later  than  ten  o’clock,  or  if  it  cease  to  be 
operated  for  more  than  ten  consecutive  days;  or  if  the  hazard 
be  increased  by  any  means  within  the  control  or  knowledge  of 
the  insured;  or  if  mechanics  be  employed  in  building,  altering, 
or  repairing  the  within  described  premises  for  more  than  fifteen 
days  at  any  one  time;  or  if  the  interest  of  the  insured  be  other 
than  unconditional  and  sole  ownership;  or  if  the  subject  of  in- 


282 


A HAND  BOOK 


surance  be  a building  on  ground  not  owned  by  the  insured  in 
fee-simple;  or  if  the  subject  of  insurance  be  personal  property 
and  be  or  become  incumbered  by  a chattel  mortgage ; or  if,  with 
the  knowledge  of  the  insured,  foreclosure  proceedings  be  com- 
menced or  notice  given  of  sale  of  any  property  covered  by  this 
policy  by  virtue  of  any  mortgage  or  trust  deed ; or  if  any  change, 
other  than  by  the  death  of  an  insured,  take  place  in  the  interest, 
title,  or  possession  of  the  subject  of  insurance  (except  change 
of  occupants  without  increase  of  hazard)  whether  by  legal  pro- 
cess or  judgment,  or  by  voluntary  act  of  the  insured,  or  other- 
wise; or  if  this  policy  be  assigned  before  a loss;  or  if  illuminat- 
ing gas  or  vapor  be  generated  in  the  described  building  (or 
adjacent  thereto)  for  use  therein;  or  if  (any  usage  or  custom 
of  trade  or  manufacture  to  the  contrary  notwithstanding)  there 
be  kept,  used  or  allowed  on  the  above  described  premises,  ben- 
zine, benzole,  dynamite,  ether,  fireworks,  gasoline,  greek  fire, 
gun  powder  exceeding  twenty-five  pounds  in  quantity,  naptha, 
nitro-glycerine,  or  other  explosives,  phosphorus  or  petroleum  or 
any  of  its  products  of  greater  inflammability  than  kerosene  oil 
of  the  United  States  standard  (which  last  may  be  used  for 
lights  and  kept  for  sale  according  to  law,  but  in  quantities  not 
exceeding  five  barrels,  provided  it  be  drawn  and  lamps  filled  by 
daylight,  or  at  a distance  not  less  than  ten  feet  from  artificial 
light) ; or  if  a building  herein  described,  whether  intended  for 
occupancy  by  owner  or  tenant,  be  or  become  vacant  or  unoccu- 
pied, and  so  remain  for  ten  days. 

This  company  shall  not  be  liable  for  loss  caused  directly  or 
indirectly  by  invasion,  riot,  civil  war  or  commotion,  or  military 
or  usurped  power,  or  by  order  of  any  civil  authority;  or  by 
theft;  or  by  neglect  of  the  insured  to  use  all  reasonable  means 
to  save  and  preserve  the  property  at  and  after  a fire  or  when  the 
property  is  endangered  by  fire  in  neighboring  premises;  or  (un- 
less fire  ensues,  and,  in  that  event,  for  the  damage  by  fire  only) 
by  explosion  of  any  kind  or  lightning;  but  liability  for  direct 
damage  by  lightning  may  be  assumed  by  specific  agreement  here- 
on. 

If  a building  or  any  part  thereof  fall,  except  as  the  result 
of  fire,  all  insurance  by  this  policy  on  such  building  or  its  con- 
tents shall  immediately  cease. 

This  company  shall  not  be  liable  for  loss  to  accounts,  bills, 
currency,  deeds,  evidences  of  debt,  money,  notes  or  securities 


OF  MUTUAL  INSURANCE 


283 


nor,  unless  liability  is  specifically  assumed  thereon,  for  loss  to 
awnings,  bullion,  casts,  curiosities,  drawings,  dies,  implements, 
jewels,  manuscripts,  medals,  models,  patterns,  pictures,  scientific 
apparatus,  signs,  store  or  office  furniture  or  fixtures,  sculpture, 
tools,  or  property  held  on  storage  or  for  repairs;  nor  beyond 
the  actual  value  destroyed  by  fire,  for  loss  occasioned  by  ordi- 
nance or  law  regulating  construction  or  repair  of  buildings,  or 
by  interruption  of  business,  manufacturing  processes,  or  other- 
wise ; nor  for  any  greater  proportion  of  plate  glass,  frescoes,  and 
decorations  than  that  which  the  policy  shall  bear  to  the  whole 
insurance  on  the  building  described. 

If  an  application,  survey,  plan  or  description  of  property 
be  referred  to  in  this  policy  it  shall  be  a part  of  this  contract 
and  a warranty  by  the  insured. 

In  any  matter  relating  to  this  insurance,  no  person  unless 
duly  authorized  in  writing  shall  be  deemed  the  agent  of  this 
company. 

This  policy  may  by  a renewal  be  continued  under  the  orig- 
inal stipulations,  in  consideration  of  premium  for  the  renewed 
term,  provided  that  any  increase  of  the  hazard  must  be  made 
known  to  the  company  at  the  time  of  renewal  or  this  policy 
shall  be  void. 

This  policy  shall  be  cancelled  at  any  time  at  the  request  of 
the  insured;  or  by  the  company  by  giving  five  day’s  notice  of 
such  cancellation.  If  this  policy  shall  be  cancelled  as  herein- 
before provided,  or  become  void  or  cease,  the  premium  having 
been  actually  paid,  the  unearned  portion  shall  be  returned  on 
surrender  of  this  policy  or  last  renewal,  this  company  retaining 
the  customary  short  rate;  except  that  when  this  policy  is  can- 
celled by  this  company  by  giving  notice  it  shall  retain  only  the 
pro  rata  premium. 

If,  with  the  consent  of  this  company,  an  interest  under  this 
policy  shall  exist  in  favor  of  a mortgagee  or  of  any  person  or 
corporation  having  an  interest  in  the  subject  of  insurance  other 
than  the  interest  of  the  insured  as  described  herein,  the  condi- 
tions hereinbefore  contained  shall  apply  in  the  manner  expressed 
in  such  provisions  and  conditions  to  such  interest  as  shall  be 
written  upon,  attached  or  appended  hereto. 

If  property  covered  by  this  policy  is  so  endangered  by  fire 
as  to  require  removal  to  a place  of  safety,  and  is  so  removed, 
that  part  of  this  policy  in  excess  of  its  proportion  of  any  loss 


284 


A HAND  BOOK 


and  of  value  of  property  remaining  in  the  original  location, 
shall  for  the  ensuing  five  days  only,  cover  the  property  so  re- 
moved in  the  new  location;  if  removed  to  more  than  one  loca- 
tion, such  excess  of  this  policy  shall  cover  therein  for  such  five 
days  in  the  proportion  that  the  value  in  any  one  such  new  loca- 
tion bears  to  the  value  in  all  such  new  locations;  but  this  com- 
pany shall  not,  in  any  case  of  removal,  whether  to  one  or  more 
locations,  be  liable  beyond  the  proportion  that  the  amount  here- 
by insured  shall  bear  to  the  total  insurance  on  the  whole  prop- 
erty at  the  time  of  fire,  whether  same  cover  in  new  location  or 
not. 

If  fire  occur  the  insured  shall  give  immediate  notice  of  any 
loss  thereby  in  writing  to  this  company,  protect  the  property 
from  further  damage,  forthwith  separate  the  damaged  and  un- 
damaged personal  property,  put  it  in  the  best  possible  order, 
make  a complete  inventory  of  the  same,  stating  the  quantity 
and  cost  of  each  article  and  the  amount  claimed  thereon;  and, 
within  sixty  days  after  the  fire,  unless  such  time  is  extended  in 
writing  by  this  company,  shall  render  a statement  to  this  com- 
pany, signed  and  sworn  to  by  said  insured,  stating  the  knowl- 
edge and  belief  of  the  insured  as  to  the  time  and  origin  of  the 
fire;  the  interest  of  the  insured  and  of  all  others  in  the  prop- 
erty; the  cash  value  of  each  item  thereof  and  the  amount  of  loss 
thereon;  all  incumbrances  thereon;  all  other  insurance  whether 
valid  or  not,  covering  any  of  said  property;  and  a copy  of  all 
the  descriptions  and  schedules  in  all  policies ; any  changes  in  the 
title,  use,  occupation,  location,  possession,  or  exposure  of  said 
property  since  the  issuing  of  this  policy;  by  whom  and  for 
what  purpose  any  building  herein  described  and  the  several 
parts  thereof  were  occupied  at  the  time  of  fire;  and  shall  fur- 
nish, if  required,  verified  plans,  specifications  of  any  building, 
fixtures,  or  machinery  destroyed  or  damaged;  and  shall  also,  if 
required,  furnish  a certificate  of  the  magistrate  or  notary  public 
(not  interested  in  the  claim  as  creditor  or  otherwise,  nor  related 
to  the  insured)  living  nearest  the  place  of  the  fire,  stating  that 
he  has  examined  the  circumstances  and  believes  the  insured  has 
honestly  sustained  loss  to  the  amount  that  such  magistrate  or 
notary  public  shall  certify. 

The  insured,  as  often  as  required,  shall  exhibit  to  any  person 
designated  by  this  company  all  that  remains  of  any  property 
herein  described,  and  submit  to  examinations  under  oath  by  any 


OF  MUTUAL  INSURANCE 


285 


person  named  by  this  company,  and  subscribe  the  same ; and,  as 
often  as  required,  shall  produce  for  examination  all  books  of 
account,  bills,  invoices,  and  other  vouchers,  or  certified  copies 
thereof,  if  originals  be  lost,  at  such  reasonable  place  as  may  be 
designated  by  this  company  or  its  representative,  and  shall 
permit  extracts  and  copies  thereof  to  be  made. 

In  the  event  of  disagreement  as  to  the  amount  of  loss  the 
same  shall,  as  above  provided,  be  ascertained  by  two  competent 
and  disinterested  appraisers,  the  insured  and  this  company  each 
selecting  one,  and  the  two  so  chosen  shall  first  select  a competent 
and  disinterested  umpire;  the  appraisers  together  shall  then 
estimate  and  appraise  the  loss,  stating  separately  sound  value 
and  damage,  and  failing  to  agree  shall  submit  their  differences 
to  the  umpire ; and  the  award  in  writing  of  any  two  shall  deter- 
mine the  amount  of  such  loss;  the  parties  thereto  shall  pay  the 
appraiser  respectively  selected  by  them  and  shall  bear  equally 
the  expenses  of  the  appraisal  and  umpire. 

This  company  shall  not  be  held  to  have  waived  any  pro- 
vision or  condition  of  this  policy  or  any  forfeiture  thereof  by 
any  requirement,  act  or  proceeding  on  its  part  relating  to  the 
appraisal  or  to  any  examination  herein  provided  for;  and  the 
loss  shall  not  become  payable  until  sixty  days  after  the  notice, 
ascertainment,  estimate  and  satisfactory  proof  of  the  loss  herein 
required  have  been  received  by  this  company,  including  an 
award  by  appraisers  when  appraisal  has  been  required. 

This  company  shall  not  be  liable  under  this  policy  for  a 
greater  proportion  of  any  loss  on  the  described  property,  by  fire, 
or  for  loss  by  and  expense  of  removal  from  premises  endangered 
by  fire,  than  the  amount  thereby  insured  shall  bear  to  the  whole 
insurance,  whether  valid  or  not,  or  by  solvent  or  insolvent  insur- 
ers, covering  such  property,  and  the  extent  of  the  application  of 
the  insurance  under  this  policy  or  of  the  contribution  to  be  made 
by  this  company  in  case  of  loss,  may  be  provided  for  by  agree- 
ment or  condition  written  hereon  or  attached  or  appended  here- 
to. Liability  for  reinsurance  shall  be  as  specifically  agreed  here- 
on. 

If  the  company  shall  claim  that  the  fire  was  caused  by  the 
act  or  neglect  of  any  person  or  corporation,  private  or  muni- 
cipal, this  company  shall,  on  payment  of  loss,  be  subrogated  to 
the  extent  of  such  payment  to  all  right  of  recovery  by  the  in- 


286 


A HAND  BOOK 


sured  for  the  loss  resulting  therefrom,  and  such  right  shall  be 
assigned  to  this  company  by  the  insured  on  receiving  such  pay- 
ment. 

No  suit  or  action  on  this  policy,  for  the  recovery  of  any 
claim,  shall  be  sustainable  in  any  court  of  law  or  equity  until 
after  full  compliance  by  the  insured  with  all  the  foregoing  re- 
quirements, nor  unless  commenced  within  twelve  months  after 
the  fire. 

Wherever  in  this  policy  the  word  “insured”  occurs,  it  shall 
be  held  to  include  the  legal  representative  of  the  insured  and 
wherever  the  word  “loss”  occurs,  it  shall  be  deemed  the  equiv- 
alent of  “loss  or  damage.” 

If  this  policy  be  made  by  a mutual  or  other  company  hav- 
ing special  regulations  lawfully  applicable  to  its  organization, 
membership,  policies  or  contracts  of  insurance,  such  regulations 
shall  apply  to  and  form  a part  of  this  policy  as  the  same  may  be 
written  or  printed  upon,  attached,  or  appended  hereto. 

This  policy  is  made  and  accepted  subject  to  the  foregoing 
stipulations  and  conditions,  together  with  such  other  provisions, 
agreements  or  conditions  as  may  be  endorsed  hereon  or  added 
hereto,  and  no  officer,  agent,  or  other  representative  of  this 
company  shall  have  power  to  waive  any  provision  or  condition 
of  this  policy  except  such  as  by  the  terms  of  this  policy  may  be 
the  subject  of  agreement  indorsed  hereon  or  added  hereto,  and 
as  to  such  provisions  and  conditions  no  officer,  agent  or  repre- 
sentative shall  have  power  or  be  deemed  or  held  to  have  waived 
such  provisions  or  conditions  unless  such  waiver,  if  any,  shall 
be  written  upon  or  attached  hereto,  nor  shall  any  privilege  or 
permission  affecting  the  insurance  under  this  policy  exist  or  be 
claimed  by  the  insured  unless  so  written  or  attached. 

This  policy  shall  not  be  valid  until  countersigned  by  the 
duly  authorized  agent  of  the  company,  at 

In  witness  whereof,  this  company  has  executed  and  attested 

these  presents  this day  of 190 . . 

THE INSURANCE  COMPANY,  by 

Countersigned  at this  ....  day  of 

190. .. 


Agent. 


OF  MUTUAL  INSURANCE 


287 


GENERALLY  USED. 

This  standard  form  is  used  in  New  York,  Con- 
necticut, Louisiana,  Missouri,  New  Jersey,  North 
Dakota,  South  Dakota,  North  Carolina,  Pennsyl- 
vania and  Rhode  Island.  Michigan,  Wisconsin, 
Maine,  Massachusetts,  Minnesota  and  New  Hamp- 
shire have  forms  of  their  own,  but  they  differ  but 
little  from  the  New  York  standard  policy.  These 
forms  are  subject  to  the  laws  of  the  state  in  which 
they  are  issued,  and  also  where  they  are  used.  Thus 
a New  York  form  is  subject  to  construction  by  the 
courts  of  New  York,  but  policies  used  by  a New  York 
company  in  insuring  property  in  Kansas  become 
subject  to  the  laws  of  Kansas. 

ADVANTAGES. 

There  is  much  advantage  in  a standard  policy; 
once  construed  it  is  construed  for  all  companies,  and 
for  all  time  and  it  is  sure  to  be  free  from  all  techni- 
calities. There  are  companies,  however,  which  issue 
policies  containing  but  a very  small  portion  of  this 
verbiage  and  they  seem  satisfied  with  them.  Some 
have  special  forms  for  different  risks  and  these  are 
extremely  simple.  It  is  a question  whether  there  is 
not  a great  advantage  in  having  a standard  form 
each  for  farm  risks,  town  dwellings,  and  mercantile 
buildings,  leaving  the  full  form  for  the  larger  estab- 
lishments where  the  risks  are  extremely  complicated. 

It  would  be  advantageous  to  the  Mutuals  to  have 
a standard  policy  for  each  class  in  every  state.  Many 
Mutuals  confine  themselves  to  a single  line  of  risks, 


288 


A HAND  BOOK 


their  policies  may  be  simplified  accordingly.  A stand- 
ard policy  for  all  Mutuals  of  the  country  is  not  prac- 
ticable, but  in  each  state  there  should  be  progress 
toward  uniformity  and  toward  simplicity,  until,  as 
in  the  case  of  the  old  common  law  deed,  the  useless 
verbiage  is  dispensed  with. 

WHAT  TO  PRINT  IN  THE  POLICY. 

There  is  a division  of  opinion  among  Mutuals 
as  to  what  should  be  printed  in  the  policy,  especially 
whether  the  by-laws  should  be  part  of  it.  It  is  true 
that  courts  hold  that  every  member  of  a Mutual  In- 
surance company  is  presumed  to  know  what  the  by- 
laws are,  but  some  states  provide  that  the  whole 
contract  must  be  printed  in  the  policy.  In  these 
states  the  by-laws  must  be  so  printed,  elsewhere  while 
it  is  not  legally  necessary,  whatever  is  part  of  the 
contract  should  be  in  the  contract  if  possible.  Courts 
are  holding  to  this  principle  in  recent  decisions. 

Some  experienced  and  successful  companies 
print  the  by-laws  in  the  application  and  in  the  policy 
both,  and  some  make  the  descriptive  part  of  the 
policy  and  of  the  application  exactly  the  same.  When 
the  policy  is  filled  out  it  contains  a duplicate  of  the 
application.  Companies  which  have  tried  this  plan 
speak  very  strongly  in  its  favor.  The  cost  is  trifling. 

NATURE  OF  POLICIES. 

In  summing  up  it  must  be  emphasized  that  In- 
surance is  a contract  for  indemnity  and  as  a contract 
the  policy  should  be  self  explaining,  care  should  be 
taken  to  see  that  it  is  true  in  fact  as  well  as  in  theory. 


OF  MUTUAL  INSURANCE 


289 


And  if  any  additional  restriction  or  privilege  is  at- 
tached to  the  policy,  let  it  he  done  in  writing  and  be 
fnlly  understood  by  both  parties. 

Stripped  of  all  verbiage,  a policy  is  the  written 
contract  which  insures  a certain  described  interest  in 
a certain  described  property  existing  under  certain 
described  conditions.  As  long  as  these  all  remain  the 
same,  the  company  is  bound ; in  case  of  fire,  the  con- 
tract stands;  but  if,  without  the  knowledge  or  con- 
sent of  the  company,  the  interest  in  the  property  or 
the  conditions  are  changed,  the  contract  is  at  an  end. 
To  illustrate : The  owner  mortgages  it  without  the 
consent  of  the  company.  He  has  broken  the  contract. 
So  if  he  vacates  it  or  changes  its  use  to  manufactur- 
ing or  makes  additions  or  repairs  which  increase 
the  risk,  the  contract  is  broken.  As  to  whether  re- 
moving the  mortgage,  re-occupying  the  building  as  a 
dwelling,  etc.,  would  again  restore  the  policy,  there 
is  some  dispute.  The  policy  usually  uses  the  word 
“void,”  but  in  many  instances  this  is  in  the  sense  of 
“voidable.”  The  New  Hampshire  fire  Insurance 
laws  contain  the  following : 

“A  change  in  the  property  insured,  or  its  use  or 
occupation,  or  a breach  of  any  of  the  terms  of  the 
policy  by  the  insured,  shall  not  affect  the  policy  ex- 
cept while  the  change  or  breach  continues.  ’ ’ 

Courts  and  juries  will  probably  follow  this  prin- 
ciple whenever  possible. 

18 


290 


A HAND  BOOK 


INSURABLE  INTEREST. 

Almost  any  kind  of  property  in  the  thing  in- 
sured, any  reasonable  expectations  of  profit  or  ad- 
vantage to  be  derived  therefrom,  will  constitute  an 
interest  which  may  be  insured.  But  it  must  be  found- 
ed on  some  legal  or  equitable  title,  a vague  expect- 
ancy of  profit  from  some  other  person’s  dealings 
would  not  constitute  an  Insurance  interest.  An  ex- 
ecutor or  executrix,  heirs  at  law,  common  carriers, 
bailees,  trustees,  tenants,  or  any  person  having  cus- 
tody of  property  for  himself  or  another,  and  respon- 
sible for  its  safe  keeping,  has  an  insurable  interest 
therein.  In  general,  any  one  can  insure  when  he  can 
show  that  he  will  suffer  loss  if  the  property  is  de- 
stroyed. 

With  regard  to  joint  interests  already  alluded 
to,  the  custom  is  not  settled.  If  one  member  sells 
to  an  outsider,  notice  must  be  given  to  the  Insurance 
company  and  the  name  of  the  new  member  endorsed 
on  the  policy.  If  one  member  sells  out  to  another 
the  case  is  doubtful,  but  if  the  insurer  is  notified  and 
the  proper  endorsement  is  made  on  the  policy  there 
can  be  no  possibility  of  trouble.  Those  who  are  too 
stupid  or  too  stubborn  to  take  such  a simple  pre- 
caution deserve  to  sutler  from  their  idiocy. 

This  is  but  a brief  sketch,  but  it  is  not  possible 
to  cover  the  subject.  Two  such  volumes  as  this  would 
not  suffice  to  give  a full  discussion  of  the  subject. 
Should  any  emergency  arise,  or  any  complicated  case 
occur,  an  attorney  should  be  consulted. 


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291 


DECISIONS. 

A few  legal  discussions  are  appended,  not  as  an 
exhaustive  list,  but  to  show  the  necessity  of  care  in 
making  out  a policy  on  the  part  of  the  company  and 
also  of  diligence  on  the  part  of  the  insured  to  see  that 
the  contract  is  kept : 

4 ‘When  a policy  on  a tenement  house  provided 
against  the  keeping  of  gasoline  on  the  premises,  the 
fact  that  gasoline  was  so  kept  by  the  tenant  without 
the  knowledge  of  the  landlord,  did  not  relieve  the  lat- 
ter from  a breach  of  the  condition.’ ’ Norway  vs. 
Thuringea  Ins.  Co.,  68  N.  E.,  111.  1. 

“In  the  same  case  the  court  also  held  that  where 
a policy  on  a tenement  house  provided  that  it  should 
be  void  if  gasoline  should  be  kept  on  the  premises 
and  such  condition  was  broken,  the  insurer  was  not 
bound,  in  order  to  relieve  itself  from  liability,  to 
show  that  the  loss  resulted  from  such  breach.  ’ ’ 

‘ ‘ The  depositing  of  a policy  by  the  insurer  in  the 
post  office  addressed  to  the  Insurance  applicant  with 
postage  prepaid  is  a good  delivery  of  the  policy.’ ’ 
Armstrong  vs.  Mutual  Life  Ins.  Co.  of  New  York ., 
96  N.  W.,  Iowa. 

“Policies  and  contracts  of  Insurance  must  be 
construed  like  other  contracts,  according  to  the  ordi- 
nary popular  sense  of  the  terms  they  contain.  This 
is  the  general  rule.” 

NEW  METHODS. 

People  are  so  accustomed  to  transacting  busi- 
ness with  persons,  firms,  or  corporations  in  which 
they  have  no  financial  interest  and  over  whose  ac- 


202 


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tions  they  have  no  control  that  they  find  the  duties 
and  rights  of  co-operators  difficult  to  recognize  and 
comprehend.  Going  from  one  establishment  to  an- 
other, paying  the  prices  demanded  without  question, 
the  fraternal  methods  are  novel  and  perplexing. 
The  customer  goes  into  the  ordinary  store  with  the 
crowd,  who  they  are  he  neither  knows  nor  cares,  he 
deals  with  those  whose  every  interest  is  their  own 
welfare  and  over  whose  actions  he  has  no  possible 
influence,  and  goes  away  not  caring  whether  or  not 
he  ever  enters  the  place  again. 

In  the  co-operative  establishment  all  is  changed. 
He  is  one  of  the  owners,  one  of  the  employers  of 
those  officials,  but  he  has  no  interest  in  making  a 
profit  on  anything.  He  no  longer  looks  upon  the 
crowd  of  customers  as  strangers,  they  are  now  his 
friends  and  associates,  and  all  have  a common  inter- 
est in  the  business,  and  a common  voice  in  the  man- 
agement. He  looks  at  everything  through  a differ- 
ent atmosphere. 

There  are  many  who  fail  to  realize  the  full  force 
of  this.  They  have  taken  out  a policy  in  a Mutual, 
they  are  insured,  what  more  do  they  need?  New 
ideas  gradually  develop  and  it  dawns  upon  them  that 
if  they  would  take  better  care  of  their  property  and 
the  others  would  do  the  same,  the  cost  of  Insurance 
would  be  less. 

They  also  see  that  if  the  company  were  warned 
against  dangerous  hazards  there  would  be  a material 
saving.  Then  comes  the  conviction  that  it  would  be 
well  to  look  up  the  other  policy  holders  to  see  who 


OF  MUTUAL  INSURANCE 


293 


and  what  they  are  and  how  they  can  benefit  the  com- 
pany by  their  joint  action.  The  growth  of  the  fra- 
ternal spirit  follows,  then  work  for  fraternalism,  and 
last  of  all  the  full  sense  of  duty.  This  is  generally  a 
slow  growth,  often  very  slow. 

Wherever  this  growth  has  matured,  is  found  the 
highest  and  best  development  of  Mutualism  and  the 
greatest  prosperity  among  co-operative  enterprises. 

The  working  out  of  this  sense  of  duty  among 
Mutuals,  results  in  watching  and  safely  guarding 
each  other’s  interests.  This  is  not  as  a mere  matter 
of  profit  or  of  personal  advantage,  but  as  something 
which  each  man  owes  to  his  fellow  man.  The  result 
is  the  improvement  of  the  service  and  the  reduction 
of  expense. 

The  more  fully  this  idea  of  duty  is  developed, 
not  as  a mere  sentiment,  but  as  a growing  principle, 
the  more  efficient  the  Mutuals  will  become.  The  more 
the  members  will  help  each  other,  the  higher  the 
standard  of  the  community  will  be  raised,  and  the 
more  will  be  the  material  recompense  in  the  shape  of 
diminished  cost. 


VALID  CONTRACT. 

In  order  to  make  a valid  contract,  the  two  con- 
tracting parties  must  agree,  or  as  the  phrase  goes, 
‘ ‘ the  two  minds  must  meet.  ” If  it  can  be  shown  that 
what  the  parties  agreed  upon  and  what  they  intended 
to  put  in  the  contract  is  not  expressed,  the  courts 
will  change  the  contract.  By  this  it  is  not  meant  that 
they  will  make  a new  contract  between  the  parties, 


294 


A HAND  BOOK 


they  will  do  no  such  thing,  they  will  merely  make  the 
contract  say  what  it  was  intended  to  say  in  the  first 
place,  provided  the  intention  of  the  parties  can  he 
made  clear. 

CONFLICT  BETWEEN  POLICY  AND  APPLICATION. 

In  the  case  under  consideration  the  best  evidence 
is  furnished  by  the  application  itself.  The  policy 
holder  has  signed  it;  presumably,  therefore,  he  has 
made  himself  acquainted  with  its  contents.  It  is 
satisfactory  to  him.  He  had  no  hand  in  making  out 
the  policy,  but  as  his  risk  was  accepted  and  accepted 
on  the  facts  stated  in  the  application  and  before  the 
policy  was  made  out,  it  may  safely  be  affirmed  that 
it  was  the  intention  that  it  should  conform  to  the  ap- 
plication. The  application,  therefore,  should  govern 
and  not  the  policy.  This  applies  to  the  policies  made 
out  at  the  main  office  of  the  company  and  issued  by 
its  principal  officers. 

If  an  agent  in  assisting  in  making  out  that  appli- 
cation has  made  material  changes  in  the  facts  in  ord- 
er to  secure  the  risk  and  make  sure  of  his  commis- 
sion, the  company  would  still  be  bound  by  the  appli- 
cation, although  it  did  not  accord  with  the  actual 
facts.  By  suppressing  facts  within  his  knowledge,  the 
agent  waived  the  right  of  using  those  facts  in  case  of 
loss. 

When  an  agent  has  the  right  to  issue  policies 
himself,  and  changes  the  facts  set  forth  in  the  appli 
cation,  that  policy  holds  the  company  in  case  of  loss. 
This  is  on  the  old  principle  that  a man  cannot  take 
advantage  of  his  own  wrong. 


OF  MUTUAL  INSURANCE 


296 


With  reasonable  care  on  the  part  of  managers 
of  companies  neither  of  these  questions  need  ever 
arise. 

HOW  DOES  A POLICY  BECOME  DELINQUENT? 

This  question  is  discussed  incidentally  in  the 
chapter  on  assessments.  What  is  said  there  is  from 
the  standpoint  of  the  company  and  is  intended  to 
aid  in  enabling  the  company  to  show  its  exact  legal 
status  in  case  of  disputes  and  thus  avoid  the  payment 
of  unjust  claims.  In  general,  a policy  becomes  de- 
linquent when  assessments  or  dues  are  not  paid  with- 
in the  time  stipulated  in  the  policy  or  the  by-laws.  A 
few  states  have  laws  on  this  matter  but  in  the  greater 
number  it  is  left  to  the  courts  to  settle  disputed  cases. 

While  the  most  of  the  responsibility  is  thrown 
upon  the  company,  the  policy  holder  must  also  use 
some  effort  to  keep  his  policy  paid  up.  In  case  of 
removal  or  change  of  post  office  it  is  absolutely  neces- 
sary that  he  notifies  the  company.  In  the  case  cited 
elsewhere,  the  policy  holder  who  changed  his  post 
office  address  left  a forwarding  order  at  the  post 
office  and  also  inquired  of  the  company  ’s  agent  when 
the  assessment  notice  was  coming.  There  is  no  ex- 
cuse for  the  post  master’s  neglect,  but  he  could  not  be 
held  responsible.  It  would  have  been  better  if  the 
agent  had  written  to  the  company  that  the  assess- 
ment notice  was  overdue.  That  would  have  called 
attention  to  the  matter  at  headquarters  and  the  of- 
ficers would  have  taken  steps  to  rectify  the  matter. 
It  is  in  attending  to  such  apparently  trifling  affairs 
that  the  good  agent  shows  his  superiority. 


296 


A HAND  BOOK 


Cases  such  as  the  one  referred  to  are  extremely 
rare.  Ordinarily,  the  first  notice  reaches  the  policy 
holder  and  is  attended  to  at  once,  or  at  least  within 
the  specified  time.  If  by  accident  it  fails  to  reach  its 
destination  the  second  notice,  especially  if  registered, 
will  be  received.  In  short,  the  man  who  wishes  to 
keep  his  Insurance  policy  in  force,  will  have  very  lit- 
tle trouble  in  doing  so.  Letters  miscarry  from  mis- 
direction, destruction  or  loss  in  the  mails,  being  taken 
from  the  post  office  by  some  person  other  than  the 
one  to  whom  they  are  directed,  and  being  lost  before 
they  are  delivered.  It  is  scarcely  possible  that  two 
letters  in  succession  should  be  subject  to  accident. 
If  the  policy  holder  has  not  changed  his  address,  he 
may  be  sure  that  he  will  get  his  assessment  notice. 
If  he  has  changed  his  address  he  should  notify  the 
company.  The  company  will  of  course  make  all  pos- 
sible effort  to  find  him  but  that  does  not  relieve  him 
from  responsibility.  In  case  of  loss,  if  the  company 
could  show  that  they  had  made  reasonable  effort  to 
find  him  before  suspending  his  policy,  and  he  was 
obliged  to  admit  that  he  had  taken  no  pains  to  notify 
them  of  the  change  of  address,  he  could  not  recover. 

In  case  of  absence  from  home,  the  policy  holder 
must  have  some  one  to  attend  to  his  business.  If  he 
does  not,  he  must  take  the  consequences. 

It  is  safest  for  each  party  in  interest  to  act  as  if 
the  responsibility  rested  on  him  alone.  The  chapter 
on  assessments  discusses  the  duty  of  the  company. 
The  duty  of  the  policy  holder  is  very  simple:  To 
watch  for  his  assessment  notice,  to  notify  the  com- 


OF  MUTUAL  INSURANCE 


297 


pany  of  all  changes  of  address  and  to  remit  promptly 
when  notice  is  received.  If  a mistake  occurs,  he 
should  use  reasonable  diligence  to  see  that  it  is  cor- 
rected. 

The  company  should  promptly  note  all  cases  of 
failure  to  remit  and  of  consequent  suspension,  other- 
wise a neglect  to  do  so  may  waive  the  right. 

HOW  MAY  A COMPANY  WAIVE  ITS  RIGHTS? 

The  general  answer  is  by  neglect  or  by  doing 
something  inconsistent  with  the  contract,  which  it 
has  made.  A few  court  decisions  are  given  as  illus- 
trating how  the  principle  applies : 

“A.  policy  of  Insurance,  issued  and  delivered  to 
the  assured,  with  a full  knowledge,  on  the  part  of  the 
insurer,  of  facts  making  it  inoperative  at  its  incep- 
tion, is  a waiver  of  all  conditions  of  the  policy  in- 
consistent with  the  facts  known  to  the  insurer. ’ ’ 

In  general,  whenever  a company  issues  a policy, 
having  full  knowledge  of  facts  which  are  contrary  to 
certain  provisions  of  that  policy,  it  waives  those  pro- 
visions. For  example,  if  the  policy  that  requires  that 
the  building  should  have  solid  brick  or  stone  founda- 
tion, is  issued  upon  a building  set  upon  blocks  with 
the  full  knowledge  of  the  company,  that  provision 
would  he  waived  so  far  as  that  policy  was  concerned. 

When  the  agent  has  full  knowledge  of  the  true 
conditions  surrounding  insured  property,  and  the 
company  issues  a policy  in  which  these  conditions 
are  restricted  or  prohibited,  the  same  are  presumed 
to  have  been  waived.  For  example : The  agent  knew 


298 


A HAND  BOOK 


that  gasoline  had  been  used  and  would  be  used  for 
cooking  and  yet  issued  a policy  without  a permit  to 
use  gasoline,  attached  thereto;  he  waived  objection 
to  gasoline. 

When  an  agent  had  every  opportunity  to  inspect 
before  insuring,  the  company  is  estopped  from  deny- 
ing the  valuation  as  stated  in  the  policy.  Ritchie  vs. 
Home  Ins.  Co.,  78  S.  W.,  (Mo.  Apl.) 

It  would  be  going  too  far  to  say  that  whenever 
an  agent  neglected  a duty  he  waived  a right,  and  yet 
it  is  often  true.  An  agent  fails  to  report  a certain 
condition  of  insured  property,  barred  by  stipulation 
of  the  policy.  Courts  hold  that  he  waived  that  stipu- 
lation. When  at  the  time  an  Insurance  agent  issued 
a policy  of  fire  Insurance,  he  knew  that  the  property 
insured  belonged  to  a partnership  of  which  the  ap- 
plicant was  a member,  his  act  in  issuing  the  policy, 
describing  the  applicant  as  the  owner,  was  a waiver 
of  the  clause  of  warranty  of  sole  ownership.  Conti- 
nental Ins.  Co.  vs.  Cummings,  et  al.,  81  S.  W.  (Tex.) 

The  Secretary  or  President  has  knowledge  of 
the  infraction  of  a contract  and  fails  to  take  notice 
of  it.  They  waive  advantage  of  that  knowledge.  An 
assessment  falls  due,  the  notice  is  not  properly  sent. 
The  right  to  suspend  for  non-payment  is  waived. 
Or  the  notice  is  duly  sent  and  received,  but  the  assess- 
ment is  not  paid.  The  company  neglects  to  suspend 
the  delinquent  as  its  rules  require.  Another  assess- 
ment occurs,  and  before  the  time  in  which  to  pay  it 
has  expired,  there  is  a loss.  Most  courts  will  hold  that 
the  right  to  suspend  on  the  first  delinquency  has  been 


OF  MUTUAL  INSURANCE 


299 


waived,  the  loss  must  be  paid.  Where  the  by-laws 
require  suspension  without  action,  the  case  would  be 
different. 

LIVE  UP  TO  THE  LAW. 

The  only  safe  way  is  to  live  up  to  the  law  and 
regulations  carefully  and  exactly.  Read  the  laws 
and  by-laws  frequently,  study  them  thoroughly,  ob- 
serve them  carefully,  following  their  wording  when 
possible.  Settle  all  doubtful  questions  at  once,  post- 
pone nothing,  but  do  everything  in  its  time  and  place, 
and  keep  full  and  accurate  records  and  there  will  be 
very  little  trouble  about  waiving  of  rights.  Of  course 
it  is  supposed  that  in  cases  of  doubt  the  company  will 
take  the  advice  of  its  attorney  before  acting.  This 
question  is  also  discussed  in  the  chapter  on  assess- 
ments. 

A GOOD  RULE. 

An  eminent  authority  lays  down  the  following 
rules : Most  things  that  come  to  the  knowledge  of  an 
agent  in  soliciting  the  risk,  before  'policy  is  written , 
are  considered  within  knowledge  of  the  company. 

Few  things  coming  to  the  knowledge  of  an  agent 
after  policy  is  issued  in  anyway  affect  the  company. 

HOW  FAR  MAY  AN  OFFICER  WAIVE  THE  RIGHT 
OF  THE  COMPANY? 

No  fixed  line  can  be  laid  down.  Every  agent  can 
bind  his  principals  to  some  extent,  but  how  far  is 
often  a subject  of  dispute.  Generally,  the  rule  is 
that  what  the  agent  knows  the  employer  knows,  and 
what  the  agent  does  is  the  act  of  the  employer  also. 


300 


A HAND  BOOK 


The  courts  have  of  late  construed  these  more  and 
more  strictly,  especially  in  the  case  of  corporations. 
To  hold  otherwise,  would  be  to  permit  companies  to 
make  contracts  which  the  other  party  could  be  com- 
pelled to  keep  but  which  they  could  repudiate  at  their 
pleasure.  The  iniquity  of  that  doctrine  is  apparent 
on  its  face. 

Whatever  an  agent  or  other  employee  acting  for 
the  company  says  or  does  regarding  an  Insurance 
contract  while  he  is  acting  along  the  line  of  his  duty 
will  generally  be  binding.  Examples  will  show  how 
this  applies. 

An  adjuster  said  to  a man  who  had  a loss:  “It 
• will  he  a long  time  before  you  get  a cent  out  of  that.” 
The  court  held  that  the  adjuster  had  waived  the  com- 
pany’s right  to  arbitration,  proof  of  loss,  etc.,  and 
that  the  loser  could  take  the  case  into  court  as  it  was. 
Siegle  et  al  vs.  Phoenix  Ins.  Co.  of  Brooklyn , 81  S. 
W.,  (Mo.  App.) 

In  a number  of  cases  in  which  officials  denied 
the  liability  for  losses,  the  courts  held  that  they 
waived  the  rights  of  the  company  in  a similar  man- 
ner. The  reason  for  this  ruling  is  that  the  question 
brought  before  the  court  was  whether  or  not  the  com- 
pany was  liable  at  all.  If  it  was  decided  in  the  nega- 
tive, the  matter  would  be  ended ; if  in  the  affirmative, 
the  court  would  finish  up  the  case  and  fix  the  amount. 

A CARELESS  PRACTICE. 

Agents  often  say  in  a careless  sort  of  manner, 
“Oh,  that’s  all  right.”  Not  unfrequently  the  com- 
pany will  be  bound  by  this  remark.  Such  expressions 


OF  MUTUAL  INSURANCE 


301 


should  not  be  used,  in  fact,  nothing  should  be  prom- 
ised which  is  not  put  in  writing. 

The  agent  can  waive  a right  by  ignoring  it.  As 
in  the  case  where  a policy  issued  without  a gasoline 
permit,  although  the  agent  knew  that  it  was  to  be 
used. 

In  the  collection  of  assessments  the  same  waiver 
of  rights  is  liable  to  occur.  An  assessment  becomes 
delinquent,  the  holder  meets  the  agent  and  pays  him 
the  assessment.  Whatever  might  be  the  strict  con- 
struction of  law,  the  jury  would  probably  hold  that 
the  act  of  the  agent  waived  the  right  of  the  company 
to  suspend  the  policy.  Policies  which  have  been  sus- 
pended are  sometimes  reinstated  in  a like  careless 
manner.  Many  companies  nominally  require  all  as- 
sessments to  be  paid  at  the  home  office.  But  a policy 
holder  falls  into  arrears,  the  agent  looks  him  up  and 
persuades  him  to  pay,  receives  the  money,  gives  a 
receipt,  and  remits  it  to  the  company,  which  rein- 
states the  delinquent.  If  it  can  be  proven  that  this 
practice  was  customary  it  might  make  trouble  for  the 
company,  in  case  the  payment  was  accepted  after  a 
loss  had  occurred. 

When  an  agent  fills  out  an  application,  recording 
the  answers  of  the  applicant,  if  he  makes  changes, 
additions,  or  omissions,  the  company  will  be  held  to 
have  waived  all  objections  to  the  matter  which  was 
so  changed  by  the  agent. 

These  are  merely  illustrations,  the  doctrine  of 
waiver  covers  too  large  a field  for  full  discussion  in 
this  work. 


302 


A HAND  BOOK 


If  several  proceedings  are  to  occur  in  a given 
order,  the  performance  of  any  one  might  be  held  as 
a waiver  of  those  preceding.  For  instance,  if  an 
adjuster  should  deny  all  liability  for  a loss,  he  should 
stop  right  there.  If  he  goes  on  to  ascertain  the  values 
and  amount  of  loss,  a jury  might  hold  that  that  was 
an  appraisement,  and  consequently  a waiver  of  the 
denial  of  liability. 

An  official  who  does  his  duty  exactly  and  pre- 
cisely when  making  contracts  and  dealing  with  the 
policy  holder  will  waive  no  rights  whatever.  He  will 
not  only  care  for  the  interests  of  the  company  but  the 
interests  of  the  policy  holder  also.  In  case  of  loss, 
satisfactory  settlements  will  be  practicable,  and  dis- 
agreements almost  unheard  of. 

An  ideal  official  is  the  one  who  keeps  close  watch 
upon  the  business  of  the  company  and  the  insured 
also  and  does  his  best  to  see  that  the  contracts  are 
fully  and  faithfully  carried  out  on  both  sides,  and 
who  always  keeps  his  books  and  his  business  up  to 
date. 

IN  CASE  OF  LOSS. 

The  customary  notice  must  be  given.  Many 
companies  enclose  with  the  policies  which  they  issue 
a blank  form  to  be  filled  out  in  case  of  fire  as  an  aid 
to  the  loser.  The  notice  must  be  given  immediately. 

While  “ immediately’ ’ is  not  ‘ ‘ instantly, 9 9 there 
must  be  but  little  delay  unless  from  some  causes 
which  can  be  explained,  such  as  absence  of  owner, 
etc.  A delay  of  ten  days  or  two  weeks  would  be  a 
suspicious  circumstance.  Notice  should  be  sent  to 


OF  MUTUAL  INSURANCE 


303 


the  home  office.  It  is  well  enough  to  notify  the  local 
agent,  but  it  must  be  borne  in  mind  that  notice  to  the 
agent  is  not  notice  to  the  company. 

Notice  sent  by  mail  should  be  registered.  De- 
positing a letter  in  open  mail  raises  a presumption 
that  it  has  been  received  but  this  may  be  denied.  The 
receipt  for  a registered  letter  is  proof  conclusive. 

If  notice  of  loss  is  unreasonably  delayed,  the 
company  should  object  as  soon  as  it  is  received,  oth- 
erwise it  may  be  held  that  they  waived  the  right  to  do 
so.  Sometimes  a proof  of  loss  is  sent  instead  of 
notice.  This  will  answer  as  notice  if  it  is  sent  at 
once.  When  blanks  for  notice  and  proof  of  loss  ac- 
company the  policy  they  should  be  used. 

DUTY  OF  ASSURED. 

If  the  damage  is  partial,  it  is  the  duty  of  the  as- 
sured to  do  what  he  can  to  save  the  property  from 
further  loss,  and  in  case  of  personal  property,  to 
separate  the  undamaged  from  the  damaged  and  to 
put  it  all  in  best  condition  possible.  An  inventory 
should  be  made  out  separately  from  the  notice  of  loss. 
This  rule  is  statutory  in  many  states,  and  must  be 
substantially  complied  with  except  in  cases  where 
damage  is  trifling  and  nothing  would  be  gained  by 
separating  the  property. 

This  inventory  is  not  required  when  there  is 
only  one  article  damaged,  nor  when  there  is  a total 
loss,  or  when  the  goods  are  so  badly  damaged  as  to 
render  it  impracticable. 


304 


A HAND  BOOK 


If  the  policy  has  been  assigned  as  security,  the 
company  should  be  extremely  cautious,  as  it  acts  at 
its  own  risk. 

After  these  preliminaries  the  company  usually 
sends  an  adjuster,  who  is  its  agent  in  ascertaining 
and  settling  the  amount  of  loss,  and  here  is  where 
trouble  usually  begins.  Respectable  companies  em- 
ploy fair  adjusters.  It  is  to  their  interest  to  do  so. 
A company  which  habitually  fails  to  pay  its  losses 
justly  would  be  like  a merchant  who  habitually  gives 
short  weight,  both  would  be  set  down  as  frauds,  and 
both  would  lose  business.  But  there  are  companies 
which  do  not  seem  to  care  for  reputation  and  there 
are  adjusters  who  act  as  if  their  only  remuneration 
consisted  in  a percentage  on  the  sums  they  saved  to 
their  employers.  These  have  brought  the  whole  busi- 
ness into  disrepute. 

It  is  generally  the  fact  that  when  a man  has  a 
loss,  he  is  apt  to  over  estimate  it.  It  looks  badly  and 
there  is  generally  a meddlesome  person  to  make  mat- 
ters worse,  and  the  Mutual  adjuster,  wishing  to  deal 
fairly,  is  often  handicapped  at  the  outset.  But  if 
the  loser  is  willing  to  be  fair,  a little  tact  combined 
with  some  forbearance  on  the  part  of  the  adjuster 
will  soon  make  an  agreement  possible. 

But  now  and  then  there  is  strong  evidence  of 
fraud.  All  such  cases  should  be  most  carefully  in- 
vestigated, for  a Mutual  has  no  more  right  to  permit 
itself  to  be  swindled  that  it  has  to  swindle  some  one 
else. 


S.  R.  VAN  METRE,  MARIETTA,  OHIO. 

S.  R.  Van  Metre  is  a descendant  of  Jan  Gysbesten  Van  Metre 
who  came  from  Holland  in  1663  and  obtained  a grant  of  40,000 
acres  of  land  in  the  Valley  of  Virginia.  S.  R.  Van  Metre  was 
raised  on  a farm,  and  in  early  manhood  was  elected  president  of 
the  Washington  County  Farmers'  Mutual  Insurance  Association, 
organized  in  1897.  was  re-elected  to  the  office  from  time  to  time, 
the  last  occasion  being  Jan.  17,  1905.  He  is  vice  president  of  the 
Federation  of  Mutual  Insurance  Associations  of  Ohio,  and  di- 
rector in  the  Ohio  Windstorm  Association  and  state  vice  presi- 
dent of  the  National  Insurance  Companies. 


H.  F.  HITCHCOCK,  LINCOLN,  NEBRASKA. 

Harvey  Fletcher  Hitchcock,  son  of  Col.  Nichola  Fletcher 
and  Jermima  Hitchcock,  was  born  Nov.  16,  1866.  at  Maxville. 
Ohio.  He  moved  to  Nebraska  in  February,  1880.  He  graduated 
from  the  public  schools,  York  College  and  Mallalieu  Uni- 
versity. He  married  Miss  Mamie  Mason,  at  Denver,  Colorado. 
He  founded  the  Mutual  Insurance  Journal  in  October,  1894.  This 
paper  has  a wide  circulation  and  has  a large  and  flourishing  job 
office  attached.  The  editorial  work  and  the  supervision  of  the 
publication  and  job  office  departments  take  the  whole  of  his 
time. 


OF  MUTUAL  INSURANCE 


305 


SHOULD  AGENTS  ADJUST? 

The  question  is  asked,  should  the  agent  act  as 
adjuster?  Mutual  Insurance  men  usually  answer 
this  question  in  the  negative.  They  say  that  the 
agent  is  liable  to  be  drawn  into  quarrels  with  his 
neighbors  which  permanently  injure  his  efficiency. 
It  is  cheaper  and  better  to  employ  the  regular  ad- 
juster. 


19 


CHAPTER  XV. 


CANCELLATION  OF  POLICIES. 

The  laws  of  many  states  are  silent  on  this  sub- 
ject, and  the  provisions  of  the  statutes  in  other  states 
are  very  brief. 

Either  party  has  the  right  to  cancel.  If  the  com- 
pany cancels  the  policy  it  must  give  due  notice  and 
return  the  unearned  portion  of  the  premium,  if  any 
there  be.  This  process  must  be  complete.  The  notice 
must  be  given  and  the  unearned  premium  must  be  ac- 
tually returned  or  at  least  tendered  in  order  to  re- 
lease the  company.  The  case  in  which  assessments 
are  due  and  unpaid  is  discussed  in  the  chapter  on  as- 
sessments. 

If  the  policy  is  cancelled  by  the  insured,  he  must 
pay  up  all  arrearages  and  liabilities.  If  a loss  has 
occurred,  he  must  pay  his  proportion  thereof  before 
he  can  be  released.  This  applies  to  all  companies 
which  assess  after  a loss.  Those  which  assess  in  ad- 
vance or  which  receive  cash  payments  for  a term  of 
years,  will  be  owing  the  policy  holder  and  must  re- 
turn the  surplus.  But  they  have  the  right  to  charge 
what  are  called  short  time  rates  which  are  somewhat 
in  excess  of  the  term  rates.  Several  tables  of  short 
time  rates  are  used.  The  following,  computed  by  the 
Iowa  Insurance  Department,  is  generally  approved. 

306— 


OF  MUTUAL  INSURANCE 


307 


These  apply  when  the  policy  holder  cancels  out.  If 
the  company  cancels,  it  must  return  the  full  propor- 
tion of  the  premium  it  has  on  hand  after  deducting 
the  policy  holder’s  share  of  all  losses  and  expenses 
which  have  occurred. 


SHORT  RATE  TABLE  TO  GOVERN  IN  THE  CANCELLATION 
OF  FIRE  INSURANCE  POLICIES. 

[Prepared  by  the  Auditor  of  State  of  the  State  of  Iowa,  in 
accordance  with  the  provisions  of  Section  1729,  the  Code.] 
Take  the  percentage  indicated  in  scale  opposite  the  number 
of  days  or  months  policy  is  to  run  on  the  premium  at  given  rate, 
and  the  result  will  be  the  premium  earned  in  case  of  cancella- 
tion. Periods  exceeding  20  days,  and  not  exceeding  25  days,  to 
be  charged  at  the  rate  of  25  days,  and  so  on  up  to  one  year. 

1 day 2 per  cent  of  annual  premium 

2 days  4 “ “ “ 

3 “ 5 “ “ “ 

4 “ 6 “ “ “ 

5 n rj  ((  a a 

6 “ 8 “ “ “ 

7 ((  g u u u 

8 “ 9 “ “ “ 

9 “ 10  “ “ “ 

10  “ 10  “ “ “ 

11  “ 11  “ “ “ 

12  “ 12  “ “ “ 

13  “ 13  “ “ “ 

14  “ 13  “ “ “ 

15  “ 14  “ “ “ 

16  “ 14  “ “ “ 

17  “ 15  “ “ “ 

18  “ 16  “ “ “ 

19  “ 16  “ “ “ 

20  11  17  11  (t  il 

25  “ 19  “ “ “ 

30  “ 20  “ “ “ 

35  “ 23  “ “ “ 


308 


A HAND  BOOK 


40  days  26  per  cent  of  annual  premium 


45 

it 

. . 27 

a 

a 

tt 

50 

1 1 

. . 28 

1 1 

1 1 

tt 

55 

tt 

. . 29 

1 1 

tt 

tt 

60 

tt 

. . 30 

1 1 

tt 

tt 

65 

tt 

..  33 

1 1 

tt 

tt 

70 

tt 

..  36 

1 1 

tt 

tt 

75 

tt 

..  37 

tt 

tt 

1 1 

80 

tt 

..  38 

a 

a 

tt 

85 

a 

, . 39 

tt 

< t 

a 

90 

tt 

or  three  months  . . 

. . 40 

1 1 

tt 

1 1 

105 

tt 

. . 45 

1 1 

n 

tt 

120 

tt 

or  four  months  . . . 

. . 50 

1 1 

tt 

tt 

135 

a 

..  55 

tt 

tt 

1 1 

150 

tt 

or  five  months  .... 

. . 60 

tt 

tt 

a 

165 

a 

. . 65 

tt 

1 1 

a 

180 

tt 

or  six  months  .... 

. . 70 

1 1 

1 1 

a 

195 

tt 

. . 73 

1 1 

a 

a 

210 

tt 

or  seven  months  . . 

. . 75 

tt 

tt 

tt 

225 

tt 

..  78 

tt 

a 

tt 

240 

1 1 

or  eight  months  . . . 

. . 80 

ft 

tt 

a 

255 

a 

..  83 

tt 

it 

tt 

270 

1 1 

or  nine  months  . . . 

. . 85 

tt 

tt 

tt 

285 

tt 

..  88 

tt 

tt 

tt 

300 

tt 

or  ten  months  .... 

. . 90 

tt 

tt 

tt 

315 

tt 

..  93 

1 1 

a 

it 

330 

1 1 

or  eleven  months  . 

. . 95 

it 

a 

a 

360 

tt 

or  twelve  months  . 

..100 

1 1 

tt 

a 

TWO 

YEARS. 

For  2 months  or  less 

Over  2 and  not  exceeding  4 months  30 

tt 

1 1 

1 1 

n 

4 

“ “ 6 

“ 40 

it 

1 1 

1 1 

t t 

6 

“ “ 8 

“ 50 

a 

1 1 

tt 

it 

8 

“ “ 10 

“ 60 

tt 

tt 

tt 

1 1 

10 

“ “ 12 

“ 70 

tt 

it 

n 

1 1 

12 

“ “ 14 

“ 75 

tt 

it 

tt 

a 

14 

“ “ 16 

“ 80 

1 1 

tt 

tt 

tt 

16 

“ “ 18 

“ 85 

1 1 

tt 

tt 

1 1 

18 

“ “ 20 

“ 90 

it 

it 

a 

1 1 

20 

“ “ 22 

“ 95 

tt 

a 

a 

tt 

22  . 

,...100 

tt 

a 

a 

OF  MUTUAL  INSURANCE 


309 


THREE  YEARS. 

For  3 months  or  less 25  per  cent  of  term  premium 


Over  3 and  not  exceeding  6 months  30 
“ 6 “ “ 9 “ 40 

a 

tt 

it 

tt 

it 

tt 

“ 9 

it 

tt 

12 

a 

50 

tt 

tt 

tt 

“ 12 

it 

1 1 

15 

a 

60 

n 

tt 

tt 

“ 15 

tt 

it 

18 

tt 

70 

tt 

tt 

tt 

“ 18 

tt 

tt 

21 

tt 

75 

tt 

tt 

tt 

“ 21 

1 1 

1 1 

24 

tt 

80 

tt 

tt 

tt 

“ 24 

tt 

it 

27 

tt 

85 

tt 

tt 

tt 

“ 27 

tt 

it 

30 

tt 

90 

1 1 

tt 

tt 

“ 30 

a 

1 1 

33 

tt 

95 

tt 

tt 

it 

“ 33 

months  . 

.100 

n 

tt 

tt 

FOUR  YEARS. 

For  4 months  or  less 25  per  cent  of  term  premium 

Over  4 and  not  exceeding  8 months  30  11  11  u 

tt  g tt  tt  12  11  40  1 1 il  11 

“ 12 

a 

tt 

16 

tt 

50 

tt 

tt 

tt 

“ 16 

tt 

it 

20 

tt 

60 

a 

tt 

tt 

“ 20 

tt 

it 

24 

tt 

70 

1 1 

tt 

it 

“ 24 

a 

tt 

28 

1 1 

75 

n 

tt 

tt 

“ 28 

tt 

tt 

32 

1 1 

80 

tt 

tt 

tt 

“ 32 

tt 

1 1 

36 

tt 

85 

a 

tt 

tt 

“ 36 

tt 

a 

40 

1 1 

90 

1 1 

tt 

tt 

“ 40 

tt 

it 

44 

tt 

95 

tt 

tt 

tt 

11  44  months  . 

.100 

tt 

tt 

tt 

FIVE  YEARS. 

For  5 months  or  less 25  per  cent  of  term  premium 

Over  5 and  not  exceeding  10  mo 's . 30  11  11  11 


t 

10 

n 

tt 

15 

tt 

40 

tt 

tt 

tt 

t 

15 

tt 

n 

20 

tt 

50 

a 

tt 

tt 

t 

20 

tt 

tt 

25 

tt 

60 

tt 

tt 

tt 

t 

25 

tt 

tt 

30 

tt 

70 

tt 

tt 

tt 

t 

30 

tt 

tt 

35 

tt 

75 

n 

tt 

tt 

t 

35 

tt 

tt 

40 

tt 

80 

1 1 

tt 

tt 

t 

40 

tt 

a 

45 

it 

85 

a 

tt 

tt 

t 

45 

tt 

a 

50 

tt 

90 

it 

tt 

tt 

t 

50 

n 

tt 

55 

tt 

95 

tt 

tt 

tt 

t 

55  months  . 

.100 

tt 

tt 

tt 

SIX  YEARS. 

For  six  months  or  less 25  per  cent  of  term  premium 


310  A HAND  BOOK 


Over  6 and  not  exceeding  12  mo ’s . 30 


it 

12 

a 

tt 

18 

it 

40 

tt 

it 

18 

a 

tt 

24 

it 

50 

a 

it 

24 

a 

tt 

30 

tt 

60 

tt 

it 

30 

tt 

tt 

36 

tt 

70 

a 

it 

36 

tt 

tt 

42 

tt 

75 

tt 

it 

42 

a 

tt 

48 

tt 

80 

tt 

it 

48 

ft 

tt 

54 

tt 

85 

tt 

(t 

54 

tt 

tt 

60 

tt 

90 

tt 

it 

60 

tt 

tt 

66 

tt 

95 

tt 

it 

66 

.100 

tt 

CHAPTER  XVI. 


CLASS  MUTUALS. 

Class  Mutuals  insure  a single  line  only.  New 
England  furnishes  a striking  example  of  success  in 
her  mill  owner’s  Mutuals.  Originally,  the  annual 
rate  on  these  great  manufacturing  establishments 
was  $2.25  per  one  hundred  dollars.  A mill  owner 
who  had  made  some  improvements  and  applied  for  a 
reduction  of  rates  was  refused  with  the  remark  that 
“ A mill  is  a mill  anyhow.  ” He  at  once  made  efforts 
to  interest  other  manufacturers  in  the  formation  of  a 
Mutual.  He  succeeded  in  organizing  a company  and 
in  calling  attention  to  the  necessity  of  taking  more 
precautions  against  fire  than  were  customary  at  the 
time.  The  result  was  that  inspectors  were  appointed, 
new  methods  adopted  and  finally  the  risks  were  so 
improved  that  the  annual  cost  is  less  than  ten  cents 
on  the  one  hundred  dollars.  Most  of  this  is  for  pre- 
vention of  fire,  the  inspection  system  being  still  kept 
up. 

ADVANTAGES. 

Class  Mutuals  have  two  peculiar  advantages. 
One  is  that  every  one  connected  with  a class  Mutual 
understands  thoroughly  all  the  risks.  In  the  case 
quoted  above  every  one  is  an  expert,  knowing  all 

—311 


312 


A HAND  BOOK 


about  a mill,  understanding  its  value,  able  to  see 
dangerous  constructions,  and  to  point  out  remedies, 
in  short,  the  whole  company  is  united  in  measures 
to  reduce  the  fire  waste.  The  moral  hazard  is  elimin- 
ated. 

Another  advantage  is  that  the  risks  are  very 
rarely  contiguous.  There  is  absolutely  no  such  thing 
as  a conflagration  loss.  It  is  impossible.  In  the 
smaller  towns,  most  class  Mutuals  would  carry  but  a 
single  risk.  Hence  losses  which  wreck  the  company 
are  not  heard  of  among  these  Mutuals.  These  ad- 
vantages are  giving  the  class  Mutuals  a good  lead  but 
they  are  hampered  by  some  restrictions. 

Most  of  them  are  confined  to  single  states,  and 
find  that  there  is  not  as  much  business  for  them  as 
they  should  have.  This  is  a matter  which  will  prob- 
ably be  remedied  in  the  future.  Some  companies  are 
already  doing  an  underground  business.  The  United 
States  supreme  court  has  affirmed  the  right  to  every 
man  to  buy  his  indemnity  where  he  pleases  without 
regard  to  state  lines.  This  does  not  give  agents  the 
right  to  solicit  business  in  states  where  the  companies 
have  not  been  regularly  admitted.  Nor  does  it  give 
the  company  itself  any  legal  status,  it  cannot  sue  or 
be  sued.  Many  class  Mutuals  do  business  only 
through  the  state  or  national  associations  and  will 
not  insure  property  unless  the  owner  is  a member  of 
one  of  these  bodies.  Sometimes  the  association  itself 
owns  the  Mutual  and  in  such  a case  the  Insurance 
company  would  be  entirely  without  legal  status  any- 
where. While  this  does  not  appear  to  be  a desirable 


OF  MUTUAL  INSURANCE 


313 


state  of  affairs,  there  are  many  companies,  without 
legal  organization,  run  entirely  “upon  honor,’ ’ and 
it  is  only  fair  to  say  that  their  members  are  well  sat- 
isfied with  their  workings,  no  complaint  about  them 
has  been  heard.  Hence  it  would  probably  be  better  if 
some  plan  could  be  adopted  whereby  all  companies 
could  be  put  upon  the  same  footing  and  all,  able  to 
prove  their  solvency,  be  admitted  to  do  business  in 
whatever  states  they  desired. 

Class  Mutuals  open  the  way  by  which  the  city 
merchant  can  take  advantage  of  the  co-operative  sys- 
tem. There  is  a strong  tendency  everywhere  toward 
Mutualism,  but  until  lately  the  way  has  not  been 
clear.  But  the  magnificent  success  of  the  Mill  Own- 
ers’ Mutual  of  the  east,  reducing  the  cost  of  Insur- 
ance over  ninety  per  cent,  and  the  economics  of  other 
Mutuals  organized  by  associations  of  dealers,  have 
set  people  to  thinking  and  it  is  probable  that  the  next 
few  years  will  witness  a great  advance  along  this 
line,  with  the  consequent  elevation  in  the  standard 
and  in  the  influence  of  the  local  dealers. 

SUCCESSFUL  MUTUALS. 

The  following  letters  from  successful  Mutuals 
will  give  full  information  on  the  subject.  Mr.  J.  H. 
Tinvoorde,  of  the  Retail  Merchants  Mutual  Fire  In- 
surance Company  of  Minneapolis,  Minnesota,  writes : 

FROM  MINNEAPOLIS  RETAIL  LUMBER. 

4 ‘In  regard  to  the  expense  of  conducting  busi- 
ness, will  state  that  the  average  expense  ratio  to  net 
premiums  received  has  been  26  per  cent.  That,  you 


314 


A HAND  BOOK 


will  readily  see,  is  about  14  per  cent  less  than  what 
tLe  old  line  companies’  expense  ratio  is.  In  regard 
to  soliciting  business,  we  do  a great  deal  of  our  solic- 
iting by  mail  and  have  one  special  on  the  road  at  the 
present  time,  who  makes  it  a business  to  solicit  and 
inspect  what  business  we  have  on  our  books. 

“Our  company  was  organized  and  started  to  do 
business  in  1900.  At  the  present  time  we  have  a little 
over  $3,000,000  at  risk  and  about  two  thousand  policy 
holders.  Now,  as  to  how  many  policy  holders  should 
a company  have  before  starting.  Our  state  law  pro- 
vides that  we  shall  have  $750,000  in  insurance  ap- 
plied for  in  no  less  than  350  separate  risks.  We  com- 
plied with  that  provision  of  the  law  and  began  writ- 
ing business  just  as  soon  as  we  secured  the  requisite 
amount,  which  amount  was  secured  through  the 
mails  in  less  than  two  months.  You  will  also  notice 
in  our  by-laws  that  our  policies  on  mercantile  stocks 
are  to  be  written  for  one  year,  no  longer ; on  house- 
hold goods  and  dwellings  we  write  them  for  three 
years. 

“That  in  brief  is  the  history  of  our  company 
since  its  organization.  The  Retail  Lumbermen’s  In- 
surance Company,  which  has  been  operating  in  this 
state  for  the  last  eight  years,  has  made  a great  deal 
better  showing  than  we  have.  The  same  can  be  said 
of  the  Hardware  Dealers’  Mutual  Insurance  Com- 
pany, which  began  business  about  the  same  time  we 
did.  It  has  a great  deal  less  at  risk  than  our  com- 
pany but  confines  itself  to  hardware  stocks  and  build- 
ings containing  the  same,  and  then  will  not  write  any 


OF  MUTUAL  INSURANCE 


815 


hardware  dealer  unless  he  is  a member  of  the  State 
Hardware  Dealers  ’ Association.  They  have  no  man 
on  the  road  and  the  secretary’s  salary  and  office  rent 
is  paid  jointly  by  the  Insurance  company  and  the 
state  association  so  that  their  expense  ratio  since 
they  have  been  in  business  has  been  but  14  per  cent. 
Their  loss  ratio  during  the  same  period  has  been  but 
17  per  cent.  There  is  no  question  in  the  writer’s 
mind  but  what  Mutuals  conducted  on  business  prin- 
ciples are  a decided  success,  speaking  for  Minne- 
sota.” 

He  enclosed  the  policy,  by-laws  and  blanks.  The 
policy  contains  the  constitution  and  by-laws,  the  pol- 
icy proper  being  very  nearly  of  the  standard  form. 

The  constitution  states  the  object  as  follows: 
1 ‘The  sole  object  and  purpose  of  this  company  shall 
be  to  indemnify  its  members  against  actual  loss  or 
damage  by  fire  or  lightning,  upon  the  mutual  plan, 
to  and  upon  their  stocks  of  merchandise,  tools  and 
fixtures,  and  upon  buildings  containing  the  same,  or 
either  of  them,  and  upon  household  furniture  and 
dwelling  houses,  or  either  thereof.” 

Policies  on  stocks  of  merchandise  and  fixtures 
shall  be  for  a term  not  exceeding  one  year,  on  dwell- 
ing houses,  etc.,  not  exceeding  three  years.  The  pol- 
icy limit  is  $3,000.  The  rates  of  insurance  are  fixed 
from  time  to  time  by  the  board  of  directors. 

“The  contingent  mutual  liability  of  each  mem- 
ber of  this  company  for  the  payment  of  losses  and 
expense,  not  provided  for  by  its  cash  fund,  shall  be 


316 


A HAND  BOOK 


a sum  equal  to  and  in  addition  to  the  premium  paid 
on  his  policy.  ’ ’ 

The  By-laws  concerning  the  reserve  are  as  fol- 
lows: 

“Section  1.  The  Board  of  Directors  may,  at 
the  end  of  each  year,  set  aside  such  sums  as  they 
deem  reasonable  and  proper,  in  no  event  to  exceed 
twenty-five  (25)  per  cent  of  the  gross  profits  of  the 
company,  for  the  purpose  of  creating  a special  re- 
serve fund. 

“Section  2.  Such  special  reserve  fund  shall  be- 
long to  the  company,  shall  not  be  divided  among  the 
members  thereof,  nor  shall  any  member  ever  be  en- 
titled to  demand  or  receive  any  portion  thereof,  ex- 
cept in  payment  of  losses.  Nor  shall  any  person  after 
ceasing  to  be  a policy  holder  of  the  company  be  en- 
titled to  have  or  receive  any  portion  of  said  special 
reserve  fund,  as  dividend  or  otherwise.’ ’ 

Their  statement  shows  that  the  company  is  in 
good  condition.  This  company  has  successfully  at- 
tacked one  of  the  most  difficult  problems  in  Mutual 
Insurance,  doing  a general  business  in  cities.  While 
the  actual  figures  may  not  show  up  with  as  much 
brilliancy  as  those  of  some  others,  they  are  fully  as 
creditable  to  its  management  when  the  character  of 
the  work  it  has  undertaken  is  considered. 

ANOTHER  COMPANY. 

E.  G.  Fahnestock,  of  the  Retail  Lumbermen’s 
Insurance  Association,  Minneapolis,  Minnesota, 
says : 


OF  MUTUAL  INSURANCE 


317 


“We  belong  to  the  few  insurance  associations 
that  adhere  strictly  to  writing  policies  only  on  one 
line,  that  of  retail  lumber  yards.  We  have  been 
organized  almost  eleven  years,  refusing  during  that 
entire  period  to  add  to  our  policies  other  merchan- 
dise which  some  retail  lumber  dealers  wish  to  have 
covered. 

“We  limited  the  amount  of  insurance  carried  by 
us  at  the  time  we  started  to  $3,000  on  any  one  risk  or 
exposure.  The  board  rate  for  a detached,  unfenced 
yard  at  that  period  was  $1.50;  a fenced  yard,  de- 
tached, $1.25.  We  took  that  as  a basis,  requiring 
them  to  deposit  with  us  as  security,  both  for  the  se- 
curity to  policy  holders  and  as  a guarantee  that  the 
assured  will  promptly  pay  any  assessments  that  are 
levied  for  the  payment  of  losses  and  expenses,  the 
deposit  to  be  returned  at  any  time  upon  the  cancella- 
tion of  the  policy,  or  upon  its  expiration,  less  only 
such  unpaid  assessments  that  remain  charged  against 
the  policy.  Each  six  months  we  collect  what  we  deem 
sufficient  for  the  purpose  of  paying  losses  and  ex- 
penses and  incidentally  to  create  a surplus  fund.  We 
collected  for  several  years  forty-eight  per  cent  of 
this  deposit,  which  left  us  a surplus  each  year.  After 
a few  years  on  that  basis,  we  gradually  reduced  that 
rate  of  assessment  and  about  four  years  ago  we  were 
collecting  only  thirty  per  cent  of  the  deposit  per  year, 
which  was  sufficient  until  the  year  1903.  By  that 
time  we  had  accumulated  a surplus  of  $33,000,  more 
than  was  necessary  for  the  payment  of  losses  and  ex- 
penses. During  that  year,  the  floods  in  Kansas  and 


318 


A HAND  BOOK 


Iowa  caused  us  extraordinary  losses  in  the  slacking 
of  lime  by  the  rising  of  water  which  fired  the  lumber 
sheds  and  stocks  of  lumber  so  that  we  had  losses 
averaging  fifty  per  cent  loss  ratio  for  that  year.  Our 
losses  for  the  first  nine  years  averaged  us  twenty 
per  cent  of  the  deposits.  The  losses  in  1903  made 
our  average  twenty-five  per  cent  for  ten  years.  We, 
therefore,  on  the  first  of  this  year  resumed  the  forty- 
eight  per  cent  rate  of  assessment  and  as  a conse- 
quence we  have  added  about  $27,000  to  our  surplus 
and  have  now  in  excess  of  forty  thousand  dollars  un- 
used assessments.  This  indicates  that  the  cost  to  our 
policy  holders  is  from  one-third  to  one-half  what  the 
old  line  companies  charged  at  the  time  of  our  organ- 
ization. These  companies,  seeing  the  business  drift 
away  from  them,  commenced  reducing  their  rates. 
They  first  reduced  to  one  dollar  for  fenced  yards  and 
one  dollar  and  a quarter  for  unfenced  and  then  down 
until  they  were  willing  to  write  insurance  at  fifty 
cents  to  prevent  us  from  getting  it.  This,  however, 
did  not  accomplish  what  they  expected,  because  our 
policy  holders  know  well  that  if  they  drove  us  out 
of  existence  they  would  very  soon  restore  the  origin- 
al rates.  With  the  reduced  rates  they  lost  money  and 
within  a year  or  so  have  commenced  going  back  to 
old  rates.  They  now  charge  75  cents  and  $1.00  for 
the  risks  they  were  carrying  at  fifty  cents  and  on 
which  they  originally  charged  $1.25  and  $1.50. 

4 ‘ The  Class  Mutuals  undoubtedly  meet  with  bet- 
ter success  than  the  State  Mutuals,  which  cover  all 


OF  MUTUAL  INSURANCE 


319 


lines.  They  can  make  a better  average  and  are  finan- 
cially stronger. 9 9 


THE  GENERAL  PLAN. 

From  its  circular  the  following  extracts  are 
taken : 

“The  Eetail  Lumbermen’s  Insurance  Associa- 
tion is  just  what  its  name  indicates,  to  wit : a Mutual 
association  of  retail  lumber  dealers.  Each  policy 
holder  is  charged  each  month  a fixed  percentage 
upon  the  amount  of  his  original  deposit,  sufficient  to 
pay  his  equitable  proportion  of  all  losses  and  ex- 
penses and  create  a suitable  reserve  fund  for  safety 
in  years  of  extraordinary  losses. 

“These  monthly  charges  are  aggregated  semi- 
annually and  put  in  the  form  of  an  assessment,  notice 
of  which  is  sent  to  the  policy  holder  and  in  accord- 
ance with  the  articles  of  the  association  and  by-laws, 
twenty  days  is  given  in  which  to  pay  the  same. 
Agreement  is  made  on  the  part  of  the  policy  holder 
to  pay  assessments  promptly  and  in  the  event  of  fail- 
ure to  do  so,  to  forfeit  to  the  association  the  entire 
original  deposit.  This  makes  the  collection  of  as- 
sessments absolutely  sure,  and  in  an  experience  cov- 
ering eight  years  we  have  had  but  one  deposit  thus 
forfeited. 

“The  amount  of  the  original  deposit  on  each 
policy  is  determined  by  the  old  rates  formerly  paid 
to  reliable  stock  companies  on  the  same  risk.  This 
deposit  is  placed  in  the  original  deposit  fund  and  is 
returnable  to  the  policy  holder  upon  surrender  of 


320 


A HAND  BOOK 


Ms  policy  for  cancellation,  less  any  unpaid  charges 
against  the  policy.  The  object  of  the  plan  is  to  keep 
the  original  deposit  fund  constantly  intact  and  our 
by-laws  explicitly  provide  that  it  shall  at  no  time  be 
impaired  more  than  twenty-five  per  cent;  hence  the 
absolute  safety  of  the  proposition. 

“The  maximum  amount  of  insurance  which  we 
can  write  upon  any  one  risk  is  $6,000.  This  is  written 
in  two  policies  of  $3,000.  Please  note  that  ‘ Series 
A’  is  the  old  series  and  ‘ Series  B’  the  new.  The  lat- 
ter series  was  started  to  accommodate  those  who 
desired  more  than  $3,000  on  one  risk,  and  as  will  be 
seen  by  reference  to  the  articles  of  association  and 
by-laws  it  is  entirely  separate  and  distinct  from 
‘Series  A’  the  same  as  if  it  were  in  fact  in  another 
company. 

“ ‘Series  B,’  inaugurated  at  the  eighth  annual 
meeting  in  January  1902,  started  out  with  half  a mil- 
lion of  insurance  to  be  written  the  first  day  its  books 
were  opened  and  with  applications  in  the  hands  of 
the  secretary  for  two  millions  to  be  written  during 
the  year.  No  prospective  policy  holder  need  hesitate 
about  ‘Series  B’  as  its  success  is  assured  from  the 
start.  The  volume  of  business  which  is  sure  to  come 
to  it  is  bound  to  reduce  the  cost  to  very  nearly  that 
already  attained  in  ‘ Series  A.  ’ 

“Policy  No.  26,  for  $3,000,  written  by  us  March 
8,  1894,  had  been  carried  for  eight  years  in  a stock 
company.  The  amount  paid  to  the  old  line  company 
in  eight  years  for  same  amount  at  1%  per  cent  rate 


OF  MUTUAL  INSURANCE 


821 


was $ 360.00 

From  March  8,  1904  to  March  1902,  with 
us  it  has  cost : 


First  year $ 21.60 

Second  year 21.60 

Third  year  21.60 

Fourth  year 20.70 

Fifth  year 16.20 

Sixth  year 16.20 

Seventh  year 15.76 

Eighth  year  13.56 

Total 


$ 147.22 


Amount  saved $ 212.78 

“The  assessments  collected  on  this  policy,  the 
aggregate  of  which  is  represented  by  the  amount 
named,  were  sufficient  to  not  only  pay  its  propor- 
tionate share  of  all  losses  and  expenses,  but  contri- 
buted its  share  toward  the  reserve  fund  which  is  a 
bulwark  of  strength  to  the  organization  and  of  safety 
to  the  policy  holders. ’ ’ 

“No  person  or  corporation  shall  be  eligible  to 
membership  in  this  association  who  is  not  a member 
of  the  Northwestern  Lumbermen’s  Association,  or 
of  some  other  association  of  retail  lumber  dealers 
with  which  the  said  Northwestern  Lumbermen’s  As- 
sociation may  be  in  co-operation,  unless  by  consent 
of  the  board  of  directors.” 

RETAIL  HARDWARE. 

A.  R.  Sale,  of  the  Mason  City,  Iowa,  Retail 
Hardware  Dealers’  Mutual  Insurance  Association, 
writes : 


20 


322 


A HAND  BOOK 


“ Would  say  that  our  Association  was  organized 
in  1903,  following  the  same  lines  of  organization  as 
the  Minnesota  Hardware  Mutual  Company,  so  far  as 
the  legislation  in  the  two  states  would  permit.  We 
collect  a full  premium  in  advance  and  return  the  un- 
used premium  at  the  expiration  of  the  policy.  We 
have  written  considerably  more  than  half  a million 
dollars  of  business  since  we  began,  securing  most  of 
this  by  means  of  correspondence.  Our  first  dividend 
to  policy  holders  was  20  per  cent.  The  dividend  on 
the  second  year  policies  will  be  declared  early  in 
January,  and  will  be  considerably  more  than  this. 

“With  regard  to  your  question,  should  we  have 
a law  authorizing  the  inter  state  class  or  single  line 
Mutuals,  we  certainly  should  have  a law  broad 
enough  to  meet  the  rulings  of  the  highest  courts.  As 
a matter  of  fact,  the  state  laws  do  not  permit  us  to 
write  outside  of  our  own  state. 

“We  think  this  is  the  law  in  most  of  the  states, 
but  we  are  protected  in  so  doing,  by  a ruling  of  the 
United  States  Supreme  Court,  which  permits  the  in- 
surer to  buy  his  protection  where  he  pleases,  in  spite 
of  the  petty  legislation  enacted  by  the  influence  of  the 
insurance  trust.’ ’ 


ANOTHER. 

The  following  letter  from  M.  S.  Mathews,  of  the 
Retail  Hardware  Dealers’  Mutual  Insurance  Com- 
pany, of  Minneapolis,  Minnesota,  is  to  the  point.  The 
accompanying  statement  is  excellent,  showing  low 
expenses,  abundant  assets  and  increasing  business. 


OF  MUTUAL  INSURANCE 


323 


“Yours  of  the  22nd,  received  Thursday.  I held 
it  over  as  we  were  to  have  a quarterly  meeting  and 
it  occurred  to  the  writer  that  something  might  come 
up  at  that  time  which  would  be  of  interest  to  you. 
Nothing  occurred  except  fixing  the  amount  of  rebate 
or  ‘ Return  Premium  ’ as  we  call  it. 

“This  year  we  are  paying  30  per  cent  but  com- 
mencing J anuary  1st,  we  pay  35  per  cent  for  the  year 
1905.  Our  method  is  slightly  different  from  that  of 
the  Retail  Lumbermen’s  Company.  We  write  for  one 
year,  except  when  on  homes  and  household  goods  of 
our  members,  when  it  may  be  either  one,  three  or 
five  years.  We  collect  the  regular  or  board  rate  as 
closely  as  possible,  rebating  at  the  expiration  of  the 
policy,  as  mentioned  above.  We  have  been  making 
rapid  gains  and  are  making  a very  good  showing. 
This  is  getting  pretty  well  along  in  the  year,  and  we 
have  not  been  printing  any  new  matter  lately.  How- 
ever, we  will  send  along  what  we  have  and  hope  it 
may  prove  of  interest  to  you.  Where  we  shine  is  on 
the  extremely  low  expense  account— 10  per  cent  as 
you  will  notice.  On  examination  of  the  figures  you 
will  notice  we  could  pay  much  larger  rebates  if  it  had 
been  deemed  advisable.  Our  management  believes 
in  a moderate  surplus,  hence  the  small  rebate  as  com- 
pared with  the  earnings. 9 ’ 

AN  EDITORIAL  EXPLANATION. 

“During  the  past  year  Trade  has  been  asked  by 
subscribers  engaged  in  the  hardware  business, 
whether  or  not  there  is  any  hardware  dealers’  Mu- 


324 


A HAND  BOOK 


tual  fire  insurance  company,  which  writes  business 
amongst  the  dealers  of  this  state,  and  what  condi- 
tions must  be  complied  with  in  order  that  applica- 
tions for  insurance  be  accepted. 

‘ ‘ For  the  benefit  of  those  hardware  dealers  who 
are  interested  in  this  subject,  we  would  say  that  the 
Minnesota  company  has  been  established  several 
years,  and  it  has  been  the  means  of  saving  thousands 
of  dollars  for  its  policy  holders  since  its  incorpora- 
tion. The  insurance  laws  of  Michigan  have  prevented 
this  company  from  carrying  on  any  extensive  cam- 
paign for  business  in  this  state,  but  there  is  nothing 
in  the  insurance  laws  which  prevents  them  from  ac- 
cepting business  when  the  application  is  made  un- 
solicited. 

“ There  is  one  condition,  however,  which  is  a 
very  important  one,  with  which  this  company  insists 
that  applicants  for  insurance  must  comply.  This  con- 
dition is  that  applicant  be  a member  of  the  State 
Retail  Hardware  Dealers’  Association.  This  com- 
pany having  been  founded  through  the  efforts  of 
organized  hardware  men,  it  is  only  reasonable  that 
it  should  insist  that  none  but  members  who  support 
these  organizations  should  participate  in  the  benefits. 
President  Bogardus  of  the  National  Retail  Hardware 
Association,  says:  4 The  insurance  feature  of  the 
hardware  associations  is  one  of  the  things  to  foster. 
Its  value  as  the  companies  grow  in  years  and 
strength,  will  be  more  marked  every  year,  and  it  was 
a wise  move  on  the  part  of  the  hardware  men  to  in- 
sure themselves.’  One  thing  the  dealer  should  re- 


OF  MUTUAL  INSURANCE 


386 


member,  however,  is  that  the  first  step  to  be  taken 
in  securing  a policy  is  to  become  a member  of  the 
State  Hardware  Dealers’  Association.  We  believe 
it  is  worth  while  for  dealers  to  look  into  this  propo- 
sition. If  there  are  any  hardware  men  in  this  state 
who  are  interested  in  this  question,  we  would  refer 
them  for  further  particulars  to  Secretary  M.  S. 
Mathews,  of  Minneapolis,  Minnesota.”— From 
“ Trade.” 

THE  LIST  GIVEN  BY  THE  " IRON  AGE.” 

At  the  present  time  there  are  eight  Mutual  fire 
insurance  companies  which  are  being  conducted  in- 
directly by  hardware  associations,  and  are  especially 
intended  for  insuring  hardware  stocks,  as  follows : 

The  Retail  Hardware  Dealers’  Mutual  Fire  In- 
surance Company,  of  Minnesota,  M.  S.  Mathews,  sec- 
retary, Boston  Block,  Minneapolis. 

The  Ohio  Hardware  Dealers’  Mutual  Fire  In- 
surance Company,  Geo.  M.  Gray,  secretary;  Coshoc- 
ton, Ohio. 

The  National  Hardware  Mutual  Fire  Insurance 
Company  of  Pennsylvania,  W.  B.  Simpson,  sec- 
retary; Huntington,  Pa. 

The  Hardware  Dealers’  Mutual  Fire  Associa- 
tion of  Pennsylvania,  W.  B.  Simpson,  secretary; 
Huntington,  Penn. 

The  Iowa  Hardware  Dealers’  Mutual  Insurance 
Association,  A.  R.  Sale,  secretary ; Mason  City,  Iowa. 

The  Hardware  Dealers’  Mutual  Fire  Insurance 
Company  of  Wisconsin,  C.  A.  Peck,  secretary ; Ber- 
lin, Wis. 


326 


A HAND  BOOK 


The  Missouri  Retail  Hardware  Dealers’  Mutual 
Fire  Insurance  Company,  Fred  Neudorff,  secretary; 
St.  Joseph,  Mo. 

Nebraska  Hardware  Mutual  Fire  Insurance 
Company,  (organized  June  16),  F.  T.  Shepard,  sec- 
retary; Lincoln,  Nebraska. 

Several  other  state  associations  have  companies 
in  process  of  formation,  and  the  list  will  probably 
be  enlarged  in  the  course  of  a few  months. 

It  may  interest  hardware  merchants  who  are 
canvassing  the  question  as  to  placing  insurance  with 
Mutual  companies,  especially  dealers  who  are  affili- 
ated with  state  hardware  associations,  for  only  one 
or  two  of  the  above  companies  accept  insurance  from 
non-affiliated  merchants,  to  know  something  about 
them,  their  method  of  insurance,  amount  of  risk,  etc. 

Of  these  companies,  the  oldest  and  by  far  the 
largest,  is  that  of  Minnesota,  which  is  now  complet- 
ing its  fifth  year  of  existence.  The  plan  of  this  com- 
pany, which  is  practically  the  one  followed  by  the 
others,  is  to  write  policies  for  one  year  only,  at  the 
expiration  of  which  the  insured  knows  to  a certainty 
just  the  amount  of  money  the  Mutual  plan  has  saved 
him  and  what  his  insurance  has  cost.  Each  year’s 
business  takes  care  of  itself,  the  premiums  being 
based  upon  the  losses  and  expenses  incurred  during 
that  year.  At  the  expiration  of  a policy  the  premium 
to  which  the  insured  is  entitled  is  returned  to  him  if 
he  does  not  desire  to  continue  another  year,  or  is 
credited  to  him  on  renewal  of  policy.  The  rate 
charged  for  insurance  is  the  established  board  rate 


OF  MUTUAL  INSURANCE 


327 


for  the  town  in  which  the  merchant  is  located,  or  if 
there  is  none  so  established,  the  applicant  for  insur- 
ance is  charged  the  rate  any  reliable  company  would 
ask  on  the  risk.  In  this  way,  the  insured  pays  no 
more  than  he  would  pay  elsewhere,  while  the  return 
premium  at  the  end  of  the  year  puts  him  that  much 
ahead.  The  return  premium  of  the  Minnesota  asso- 
ciation, for  policies  expiring  during  the  present  year, 
is  thirty  per  cent ; this  also  permitting  a substantial 
addition  to  the  surplus.  The  company  expects  to 
furnish  insurance  at  an  actual  cost  of  less  than  50 
per  cent  of  old  line  rates. 

The  other  companies,  which  have  all  been  organ- 
ized within  a year  or  so,  some  of  them  since  the  be- 
ginning of  1904,  all  follow  the  same  general  plan  as 
already  stated.  Officered  as  they  are  by  representa- 
tive merchants  of  high  standing,  there  is  every 
reason  to  suppose  that  they  will  duplicate  the  suc- 
cess of  the  Minnesota  company  in  furnishing  safe 
insurance  at  a substantial  concession  from  the  usual 
rate. 

The  Minnesota  company  accepts  insurance  from 
merchants  in  any  state  who  are  members  of  their 
state  association  (and  who,  of  course,  are  a “good 
risk”),  nearly  fifty  per  cent  of  their  business  being 
with  dealers  outside  of  Minnesota. 

The  Ohio  company  is  not  prepared  to  extend  the 
privilege  of  insurance  to  hardware  merchants  in  oth- 
er states,  but  it  does  insure  hardware  merchants  who 
are  not  members  of  the  Ohio  State  Association. 

The  National  company  as  the  name  implies,  in- 


828 


A HAND  BOOK 


sures  dealers  anywhere  who  are  affiliated  with  a 
state  association,  this  company  having  been  organ- 
ized for  this  purpose,  under  the  special  auspices  of 
the  National  Hardware  Dealers’  Association.  The 
limit  of  insurance  is  $3,000. 

The  Pennsylvania  company  accepts  risks  in  any 
of  the  states  contiguous  to  the  Keystone  state.  It  has 
no  absolute  rule  limiting  insurance  to  members  of  as- 
sociations, and  has  accepted  a few  policies  from  par- 
ties in  states  where  there  is  no  association.  The  in- 
surance limit  is  $3,000. 

The  Iowa  company  accepts  insurance  from  deal- 
ers in  adjoining  states,  and  is  not  yet  ready  to  extend 
the  privilege  to  others.  The  limit  on  a single  risk  at 
the  present  time  is  $2,000.  Where  the  policy  is  writ- 
ten for  a larger  amount  the  same  is  covered  by  rein- 
surance. It  does  not  carry  more  than  $3,000  in  any 
one  block,  but  this  is  a matter  which  again  is  cared 
for  by  reinsurance,  where  it  is  necessary  to  accept 
the  insurance  for  the  convenience  of  dealers.  Divi- 
dend No.  1 of  this  company  entitles  holders  of  poli- 
cies written  up  to  February  15, 1904,  to  a cash  rebate 
of  20  per  cent. 

The  Wisconsin  company  insures  hardware  deal- 
ers anywhere,  provided  they  are  identified  with  an 
association.  The  limit  on  a single  exposure  is  $3,000 
on  either  building  or  stock,  or  divided  between  the 
two. 

The  Missouri  company  has  not  yet  commenced 
taking  insurance  outside  the  state,  except  on  ap- 
proval of  the  executive  committee.  It  insures  only 
members  of  associations  and  limits  the  risk  to  $2,000. 


OF  MUTUAL  INSURANCE 


329 


RETAIL  DRUGGISTS. 

John  Weyer,  Secretary  of  the  Eetail  Druggists 
Mutual  Fire  Insurance  Company  of  Cincinnati,  Ohio, 
writes  as  follows : 

“This  Company  has  been  in  operation  fifteen 
and  a half  years,  first  as  an  association  on  the  assess- 
ment plan,  but  in  1902,  we  reincorporated,  or  ad- 
vanced to  our  present  form,  namely  a regular  Mutual 
Fire  Insurance  Company  in  which  we  charge  full 
premiums  and  return  the  profits  in  dividends,  after 
setting  a reasonable  sum  (not  to  exceed  25  per  cent 
of  the  net  profits)  to  a permanent  reserve  fund. 

“Our  risks  are  nearly  all  one  class;  viz.,  retail 
drug  stores,  a class  considered  and  rated  as  extra 
hazardous  in  the  smaller  cities  and  towns,  nearly  al- 
ways situated  in  the  congested  business  districts  and 
therefore  subject  to  conflagration  hazard,  and  in 
which  territory  it  is  well  known  that  rates  are  sel- 
dom, if  ever,  above  the  hazard. 

“We  believed  that  a drug  store  was  not  more 
hazardous  than  other  mercantile  risks,  and  hoped  to 
save  twenty  to  twenty-five  per  cent  from  that  source. 
Second,  we  expected  to  save  twenty-five  per  cent  at 
least,  by  not  placing  our  business  in  the  hands  of  local 
agents,  but  by  securing  and  inspecting  our  risks  our- 
selves. 

“We  make  our  dividends  uniform— based  on  the 
experience  of  a series  of  years— so  that  the  surplus 
of  favorable  years  pays  the  losses  of  the  less  favor- 
able. We  have  returned  to  our  members  a profit, 
under  the  association  form  of  30  per  cent  and  under 


330 


A HAND  BOOK 


our  present  form  35  per  cent  besides  adding  10  per 
cent  to  12  per  cent  to  our  permanent  reserve  and  a 
small  amount  to  general  surplus.  Our  average  losses 
for  the  past  ten  years  have  been  27  per  cent  of  the 
premiums,  and  our  premiums  are  at  least  25  per  cent 
less  than  the  present  tariff  rates. 

“Drug  stores  are  generally  subject  to  a sur- 
rounding hazard,  over  which  we  have  no  control,  but 
by  personal  inspection,  giving  information  regarding 
the  handling  of  inflammables  and  avoiding  the  moral 
hazard  as  much  as  possible,  we  are  able  to  make  this 
company  very  profitable  to  its  members.  ’ 9 

PLATE  GLASS. 

These  companies  insure  all  kinds  of  plate  glass 
against  breakage  from  all  causes  not  covered  by  the 
ordinary  fire  policies.  There  is  an  enormous  busi- 
ness done  in  that  line  and  the  class  Mutuals  are  be- 
ginning to  look  after  it.  To  show  the  liability  to  ac- 
cident of  plate  glass,  the  following  report  of  an  east- 
ern company  of  losses  adjusted  during  1903  is  given. 


Number 

Causes.  of  Losses. 

Stones  or  other  missiles  1445 

Wind 538 

Pistol  shots 106 

Burglars 187 

Settling  of  building 66 

Runaway  horses 71 

Explosions 82 

Drunken  persons  177 


OF  MUTUAL  INSURANCE 


331 


Articles  falling  against  glass 446 

Imperfect  setting 8 

Transoms  falling 24 

Unknown  2454 

Cleaning  windows  55 

Doors  slamming 263 

Warping  of  frames 19 

Automobiles 3 


This  list  is  not  complete.  Irregular  expansions 
from  the  heat  of  the  sun,  heavy  hail,  earthquakes 
and  other  causes  come  in  for  their  share  of  break- 
ages. 

“The  Iowa  Plate  Glass  Mutual  Ins.  Co.  was  or- 
ganized and  commenced  issuing  policies  Oct.  20, 
1902,  with  $104,000  of  applications  for  insurance. 
Organized  under  Chapter  5.  We  collect  one  half 
board  rates  in  advance,  write  the  insurance  for  one 
year.  The  amount  collected  has  been  sufficient  to 
carry  the  business  for  one  year,  we  make  one  assess- 
ment a year.  The  assured  renews  his  insurance  by 
paying  the  assessments  made  on  him.  In  the  case  of 
the  first  payment  being  sufficient  to  carry  the  in- 
surance the  first  year,  the  second  payment  carried  it 
another  year. 

“We  anticipate  that  we  shall  not  be  obliged  to 
raise  the  rate,  but  if  necessary,  we  can  assess  for 
more  money  to  pay  losses  and  expenses.  Unless 
some  calamity  should  befall  us  we  do  not  expect  any 
member  to  ever  owe  the  association  anything.— Jas. 
A.  Swallow.” 


332 


A HAND  BOOK 


The  use  of  a state  or  national  association  as  a 
filter  to  strain  out  extra  hazardous  risks  produces 
excellent  results.  The  moral  hazard  is  practically 
eliminated.  New  ideas  are  exchanged,  new  methods 
adopted  and  the  rate  of  insurance  is  continually  be- 
ing driven  down  toward  a minimum.  So  far,  how- 
ever, it  has  not  been  possible  to  induce  all  the  busi- 
ness establishments  in  any  one  line  to  join  the  state 
or  national  associations.  Many  of  those  who  re- 
main outside  are  excellent  risks  and  would  insure  in 
a Mutual  if  they  could. 

THESE  MUTUALS  SHOULD  BE  ENCOURAGED. 

There  are  good  reasons  why  class  Mutuals 
should  be  encouraged.  They  carry  risks  cheaply, 
and  they  stimulate  thrift,  but  the  most  important 
reason  of  all  is  that  they  improve  the  risks  and  re- 
duce the  dangers  of  losses  by  fire.  Where  only  one 
risk  in  a block  is  insured  in  a Mutual  it  is  likely  to  be 
exposed  to  danger,  owing  to  careless  occupants  on 
either  side.  Should  these  be  insured,  each  in  his  own 
line,  the  hazard  would  be  greatly  reduced. 


CHAPTER  XVII. 


STATE  FIRE  MARSHAL. 

R.  M.  SCOTT,  PILLSBURY,  KANSAS. 

One  of  the  most  intricate  and  important  ques- 
tions that  confronts  advancing  civilization  is : How 
to  control  the  fire  loss.  The  annual  annihilation  of 
wealth,  the  accumulation  of  ages,  the  products  of 
labor,  skill  and  genius,  is  a constant  drain  upon  the 
resources  of  our  people.  Homes,  churches,  stores, 
manufacturing  establishments  and  much  other  public 
and  private  property  are  carried  away  by  the  fire 
fiend.  By  it  homes  are  desolated,  business  interests 
and  enterprises  are  delayed  or  destroyed  and  many 
people  are  left  without  employment. 

ANOTHER  OPINION. 

The  state  fire  marshal  of  Ohio  in  discussing  this 
subject  says  this  loss  aggregates  in  a series  of  years, 
a sum  which  is  almost  beyond  comprehension.  Neith- 
er the  public  nor  those  we  term  the  insured,  seem  to 
have  any  adequate  conception  of  this  loss,  nor  is  the 
fact  generally  realized  that  it  is  the  result  largely  of 
ignorance,  carelessness  and  incendiarism.  It  should 
not  he  disregarded  or  passed  over  lightly,  but  the 
means  by  which  it  may  be  reduced  should  receive  our 
best  consideration. 


—333 


834 


A HAND  BOOK 


TREMENDOUS  LOSSES. 

Such  extravagant  public  losses  from  any  other 
source  would  be  the  principal  subject  of  investiga- 
tion and  legislation.  The  fire  losses  of  the  United 
States  will  average  at  least  $150,000,000  per  annum, 
while  it  will  exceed  that  amount  for  the  past  few 
years.  According  to  a report  in  the  St.  Louis  Globe 
Democrat,  this  loss  in  1904  amounted  to  $252,000,000. 

One  of  the  most  important  questions  that  stirs 
the  blood  and  troubles  the  waters  of  the  American 
people  in  each  succeeding  political  campaign,'  is  the 
tariff  question,  yet  the  government  has  usually  only 
collected  about  $150,000,000  on  imports  per  year,  and 
all  this  money  is  scattered  among  the  people  again. 
The  people  of  this  country  are  losing  about  the  same 
amount  by  fire  every  year,  which  is  a total  loss,  yet 
there  is  practically  but  little  interest  taken  in  this 
subject  and  few  efforts  are  made  to  discover  the 
causes  and  remedy  the  evils  which  produce  this  enor- 
mous loss. 


UNACCOUNTABLE  INDIFFERENCE. 

It  is  difficult  to  account  for  such  stupidity  and 
indifference  on  the  part  of  an  intelligent  and  pro- 
gressive people.  It  cannot  be  credited  to  ignorance 
among  a reading  people,  for  every  paper  they  scan 
contains  a record  of  one  or  more  destructive  fires, 
with  their  attendant  misery  and  frequent  loss  of  life. 
!We  can  only  attribute  this  indifference  to  a few 
causes,  chief  among  which  is  the  fact  that  familiarity 
breeds  indifference  and  contempt. 


OF  MUTUAL  INSURANCE 


335 


Fire  losses  are  as  old  as  human  history  and  some 
such  losses  seem  to  he  a kind  of  necessity  of  fate  aris- 
ing from  the  unavoidable  contingencies  of  life.  Men 
are  disposed  to  travel  along  in  the  old  beaten  paths 
of  custom,  instead  of  making  the  effort  and  taking 
the  pains  necessary  to  straighten  these  paths  or  to 
climb  the  hills  to  the  higher  planes  of  enterprise, 
progress  and  prosperity. 

Another  reason  for  this  indifference  may  he 
found  in  the  inability  of  the  average  mind  to  grasp 
the  real  import  of  the  figures  which  represent  this 
loss  for  even  a single  year.  To  elucidate  this  point 
let  us  make  a few  comparisons.  The  fire  loss  in  this 
country  for  1904  amounted  to  $252,000,000  or  a daily 
average  of  $690,410,  that  makes  a loss  of  $28,767 
every  hour  during  the  entire  year.  Perhaps  more 
than  one  half  of  the  homes  occupied  by  the  laboring 
class  of  the  American  people  would  not  cost  more 
than  $1,000.  This  fire  loss  would  therefore  equal  the 
destruction  of  six  hundred  and  ninety  such  homes  a 
day.  If  these  losses  were  confined  to  such  homes, 
they  would  render  homeless  two  thousand  seven  hun- 
dred and  sixty  people  every  day  in  the  year  or  in 
other  words,  it  would  be  equivalent  to  the  daily  de- 
struction of  all  the  residence  property  in  a city  of  two 
thousand  seven  hundred  and  sixty  inhabitants. 

This  fire  loss  in  1904  is  equal  to  more  than  the 
estimated  cost  of  constructing  the  Panama  Canal  by 
$20,000,000.  It  would  equal  in  five  years  $1,260,000,- 
000  or  an  amount  equivalent  to  our  entire  national 
debt. 


836 


A HAND  BOOK 


A KANSAS  PROTEST. 

Hon.  W.  V.  Church,  while  state  superintendent 
of  insurance  of  Kansas,  in  an  address  on  this  sub- 
ject, made  the  following  statement: 

“If  fire  disasters  were  a new  evil  in  the  world, 
humanity  would  become  absolutely  horrified  in  the 
presence  of  so  great  a calamity,  and  if  terror  did  not 
rob  us  of  our  reason,  it  is  certain  that  heroic  meas- 
ures would  be  adopted  to  stop  the  ravages  of  that 
element  which  is  daily  annihilating  enormous  prop- 
erty values  and  literally  wiping  out  of  existence  the 
best  products  of  human  ingenuity  and  skill.  But  long 
association  with  dangerous  conditions  as  with  evil 
surroundings  brings  corrupting  results,  and  it  seems 
to  me  that  intelligent  men  are  guilty  of  criminal 
negligence  in  practically  refusing  to  adopt  some 
means  for  more  effectual  protection  against  the  rav- 
ages of  fire. 

“From  a financial  standpoint,  the  state  should 
be  greatly  interested  in  suppressing  fire  ravages  for 
the  reason  that  our  state  treasury  is  yearly  robbed 
of  legitimate  revenues  as  the  result  of  the  annihila- 
tion of  taxable  property  by  fire.,, 

To  prescribe  a remedy  for  so  great  an  evil  neces- 
sarily implies  that  we  must  have  an  intelligent  under- 
standing of  the  causes  which  produce  this  evil  and 
the  laws  which  control  their  operation. 

It  is  an  admitted  fact  that  much  more  than  one- 
half  of  this  enormous  fire  loss  is  the  result  of  ignor- 
ance, carelessness  and  crime.  Our  imperfect  statis- 
tics show  that  one-third  of  it  or  more  is  caused  by 


C.  S.  COLLINS,  LITTLE  ROCK,  ARK. 

He  served  in  the  Confederate  army.  Has  a liberal  education 
and  has  practiced  law  for  years  at  Little  Rock,  Arkansas.  He 
was  incidentally  a legislator,  editor,  leader  in  the  Bryan  move- 
ment, on  the  railroad  commission,  and  recently  interested  and 
prominent  as  an  advocate  of  Mutualism  in  insurance.  He  is 
the  father  of  eight  grown  children,  five  sons  and  three  daughters. 
A “Patriarch"  and  a wide  awake,  successful  insurance  man. 


I.  F.  TALBOTT,  McPHERSON,  KANSAS. 

Mr.  Talbott  is  a native  of  Ohio,  but  has  been  in  Kansas  for 
many  years.  He  has  always  been  a farmer  and  enjoys  country 
life.  He  is  a strong  advocate  of  co-operation  in  all  its  forms. 
For  some  years  he  has  been  president  of  the  Farmers  Alliance 
Insurance  Company,  of  McPherson,  and  putting  forth  the  best 
efforts  of  his  life  in  its  behalf — and  successfully,  too. 


OF  MUTUAL  INSURANCE 


337 


the  deliberate  purposes  of  vicious  men.  Originally 
envy  and  maliciousness  were  principally  the  causes 
of  incendiarism,  but  since  fire  insurance  has  become 
a prevalent  practice,  a new  motive  has  been  devel- 
oped and  now  incendiarism  is  practiced  very  largely 
as  a speculation,  or  as  a means  of  personal  gain. 

A careful  analysis  of  the  causes  that  produce 
fire  losses  indicates  that  they  are  of  but  two  general 
classes,  which  we  designate  as  the  material,  and  the 
moral  hazard.  In  the  first  class  we  would  include  all 
such  losses  as  result  from  ignorance,  carelessness 
and  accidents,  while  the  second  class  or  moral  haz- 
ard, includes  only  fires  intentionally  caused  by  men. 
When  we  stop  to  reflect  upon  the  extent  of  these 
losses  and  the  causes  which  produce  them,  we  can 
readily  see  the  importance  of  having  some  author- 
ized officer  or  agent  appointed  for  the  specific  pur- 
pose of  discovering  these  elements  of  danger  and  re- 
moving as  far  as  possible  such  elements  and  condi- 
tions. 

Such  an  officer  is  termed  a fire  marshal. 

A state  fire  marshal  is  the  official  representative 
of  a department  of  the  state  administration,  estab- 
lished for  the  purpose  of  making  a thorough  investi- 
gation as  to  the  origin  and  causes  of  all  fires  through- 
out the  state;  to  establish  a system  of  local  official 
inspection  that  will  investigate  all  classes  of  property 
and  regulate  or  remove  all  dangerous  substances  and 
conditions;  to  suggest  and  enforce  such  regulations 
as  will  effectually  prevent  or  curtail  the  destruction 
of  property  by  fire.  If  in  conducting  an  examination 
21 


338 


A HAND  BOOK 


as  to  the  origin  and  cause  of  any  fire,  he  shall  become 
satisfied  that  it  is  of  a doubtful  and  suspicious  char- 
acter, it  becomes  his  duty  to  make  a judicial  investi- 
gation of  the  case,  to  summon  and  examine  wit- 
nesses relative  to  the  case,  and  if  he  finds  that  the 
fire  was  of  incendiary  origin  and  the  evidence  war- 
rants it,  it  becomes  his  duty  to  prosecute  the  crim- 
inal. 

It  is  his  duty  to  educate  the  public  along  the  line 
of  dangerous  elements  and  conditions,  enforce  the 
laws  already  existing  and  suggest  other  necessary 
laws  for  the  protection  of  society  from  the  fire  haz- 
ard. 


EFFECT  OF  CHANGES. 

The  great  changes  that  have  taken  place  in  our 
economic  system  in  recent  years,  the  introduction  of 
new  and  dangerous  substances,  such  as  petroleum, 
gasoline,  natural  gas  and  electricity,  and  their  adop- 
tion and  use  by  the  public  for  lighting  and  heating 
purposes  as  well  as  for  motive  power,  all  present 
new  and  intricate  problems  to  the  public  for  their 
solution.  The  laws  that  govern  these  substances 
and  the  methods  that  should  be  adopted  in  handling 
and  utilizing  them  are  not  fully  understood  by  those 
most  familiar  with  them,  and  while  experts  on  these 
subjects  have  much  to  learn  about  them,  it  is  not  sur- 
prising that  they  are  dangerous  elements  in  the  un- 
tutored hands  of  the  public  at  large. 

The  changed  conditions  added  to  the  introduc- 
tion of  the  parlor  match,  together  with  the  long 
standing  carelessness  of  many  people,  who  often 


OF  MUTUAL  INSURANCE 


339 


allow  a vast  amount  of  rubbish  and  inflammable  ma- 
terial to  accumulate,  all  suggest  the  imperative  need 
for  a state  officer,  whose  business  it  shall  be  to  gain 
and  disseminate  all  needed  information  on  these 
subjects ; one  who  shall  have  a complete  supervision 
of  the  work  of  inspection  and  correction  throughout 
the  state.  He  is,  in  fact,  a kind  of  a property  health 
officer,  with  a representative  in  every  town  and  town- 
ship, whose  work  is  to  discover  and  remove  the  ma- 
terial for,  and  causes  of  fires  before  they  have 
wrought  their  work  of  destruction. 

Fire  insurance  has  become  one  of  the  most  im- 
portant departments  of  our  great  commercial  sys- 
tem. If  it  was  destroyed,  many  of  our  large  busi- 
ness enterprises  would  be  paralyzed  and  all  commer- 
cial interests  would  be  seriously  affected.  Its  pur- 
pose is  to  gather  a tax  from  the  many  property  own- 
ers and  distribute  the  fund  thus  accumulated,  to  the 
few  unfortunates  who  have  sustained  loss  by  fire.  It 
is  in  fact  a great  philanthropic  institution,  based  on 
the  divine  principle  that  4 ‘We  are  our  brothers’ 
keepers.” 

Avarice  and  cupidity  have  largely  perverted 
this  great  humane  principle,  and  vicious  characters 
have  become  so  base  as  to  use  this  benevolent  enter- 
prise as  a means  of  direct  personal  gain;  not  hesi- 
tating to  over  insure  their  property  and  then  burn 
it  for  the  insurance.  In  many  instances  they  destroy 
a vast  amount  of  property  for  their  neighbors  and 
the  community. 


340 


A HAND  BOOK 


As  we  have  shown  above,  this  class  of  losses  has 
become  a menace  to  the  public  safety,  so  that  the 
changed  conditions  of  our  times  make  the  presence 
of  such  an  officer  imperative. 

GOOD  MEN  REQUIRED. 

From  the  nature  and  importance  of  the  work  to 
be  accomplished,  it  is  apparent  that  it  cannot  be  per- 
formed by  any  of  our  ordinary  official  forces,  as  it 
will  require  all  the  time  of  one  or  more  men.  It  will 
require  a man  of  rare  talent  and  technical  education 
to  conduct  the  affairs  of  this  office.  He  will  need  all 
the  tact  and  skill  of  a detective,  the  courage  and  per- 
sistency of  a policeman,  the  legal  knowledge  of  an 
attorney  and  the  technical  knowledge  of  the  scien- 
tist, with  the  practical  knowledge  and  experience  of 
an  architect.  He  could  materially  and  permanently 
reduce  the  fire  hazard  by  laying  down  the  rules  for 
the  construction  and  repairing  of  various  classes  of 
buildings  by  directing  as  to  what  kind  of  material 
should  be  used  and  the  methods  to  be  employed  for 
ventilation,  lighting  and  heating  purposes. 

It  will  require  all  the  time  and  energy  of  this 
officer  to  organize  and  conduct  the  business  of  this 
department  of  the  state  administration,  and  he  will 
need  the  assistance  of  one  or  more  deputies  and 
stenographers  for  the  work  of  this  office.  He  must 
direct  the  efforts  and  receive  and  chronicle  the  re- 
ports of  the  fire  chiefs  and  other  officers  of  this  de- 
partment throughout  the  state.  He  will  need  com- 
plete facilities  and  equipments  for  his  office  and 
work. 


OF  MUTUAL  INSURANCE 


341 


The  best  and  most  satisfactory  teacher  is  obser- 
vation and  experience ; therefore  we  will  give  a few 
extracts  from  the  official  reports  of  the  state  fire 
marshals  of  several  states  which  have  tested  the  fire 
marshal  law.  The  quotations  will  explain  the  nature 
and  importance  of  the  work  of  this  office. 

FROM  OHIO. 

The  state  fire  marshal  of  Ohio  in  his  report  for 
1903  under  the  head  of  ‘ ‘ Inspection ’ ’ says:  “It  is 
evident  from  the  nature  of  various  causes  we  have 
discussed  that  carelessness  either  directly  or  indi- 
rectly in  its  many  forms  is  the  most  prolific  of  all 
causes  of  fires.  This  being  the  case,  there  is  no  doubt 
that  careful  and  thorough  inspection  and  the  dis- 
covery and  remedy  of  those  conditions  most  liable 
to  cause  fires  will  bring  a marked  decrease  in  the 
number  of  fires  and  the  consequent  damage.  During 
the  latter  part  of  the  year,  we  have  been  giving  some 
attention  to  inspection  in  our  large  cities.  Two 
thousand  seven  hundred  and  thirty  buildings  have 
been  examined  and  many  dangerous  conditions  have 
been  discovered  and  ordered  remedied.  ’ ’ 

In  discussing  the  various  causes  of  fires  under 
the  class  he  terms  “unknown  causes,”  the  fire 
marshal  says : 4 ‘ During  the  past  year  999  fires  have 
occurred,  the  causes  of  which  were  unknown,  this 
number  shows  a decrease  when  compared  with  the 
year  1901  or  1902.  As  the  closer  investigation  of 
fires  progresses,  the  number  of  ‘unknown  causes’ 
will  decrease,  although  it  may  never  be  possible  to 


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A HAND  BOOK 


ascertain  the  cause  of  every  fire ; especially  will  this 
he  true  of  fires  where  the  property  concerned  has 
been  entirely  consumed.  In  my  report  of  last  year 
it  is  estimated  that  of  the  number  of  fires  reported 
as  ‘unknown’  at  least  fifty  per  cent  should  be  con- 
sidered as  incendiary  and  I am  still  of  the  same 
opinion.  ’ ’ 

In  discussing  the  subject  of  gas,  he  says : “Dur- 
ing the  past  year  206  fires  have  resulted  from  care- 
lessness in  the  use  of  gas.  Twenty-five  per  cent  of 
this  number  were  caused  by  the  use  of  rubber  tub- 
ing for  conveying  gas  from  the  permanent  piping 
to  stoves,  grates  and  burners.  Gas  soon  destroys 
rubber,  especially  the  poor  quality,  thus  causing 
leaks,  many  deaths  from  asphyxiation  and  explosion 
have  resulted,  often  followed  by  a heavy  loss  of 
property  from  this  pernicious  practice.  ’ ’ 

We  give  below  a few  quotations  from  the  Ohio 
fire  marshal’s  report  for  1904.  “This  (report)  shows 
the  number  of  fires  during  the  first  calendar  year 
after  the  creation  of  the  office  of  fire  marshal  to  have 
been  more  than  1,000  greater  than  the  average  num- 
ber in  the  subsequent  three  years. 

“The  parlor  match  has  attained  the  perfection 
of  utility  and,  at  the  same  time  has  become  respon- 
sible for  a greater  loss  of  property  than  any  other 
single  invention  of  man.  In  Ohio  the  burning  of 
buildings  by  carelessness  with  these  matches  is  a 
continuous  performance,  the  attending  light  is  never 
allowed  entirely  to  go  out,  because  a new  fire  i3 
started  for  each  sixteen  hours. 


OF  MUTUAL  INSURANCE 


343 


1 1 Of  the  446  fires  in  1904  from  carelessness  with 
matches,  122  were  from  children,  298  from  those  of 
mature  years  and  22  from  rats  or  mice.  The  Spec- 
tator says  that  a parlor  match  was  responsible  for 
the  Sioux  City  fire,  which  resulted  in  the  heaviest 
loss  in  the  west  during  1904.  A man  stepped  on  the 
match  and  the  blazing  head  flew  into  a pile  of  cotton 
batting  near  by.  ’ ’ 

Under  the  head  of  defective  flues,  he  says: 
“The  cost  of  fire  departments  added  to  the  $6,850,- 
000  of  direct  annual  loss  from  fires  equals  fifteen  per 
cent  of  the  total  year’s  product  of  all  the  industries 
of  the  state.  That  is  to  say,  every  producer  gives 
one  and  one-half  hours  out  of  each  ten-hour  day  to 
making  good  the  state’s  fire  loss.  This  loss  is  dis- 
tributed through  insurance. 

“Each  of  the  729  fires  in  Ohio  last  year  from 
defective  flues,  could  have  been  prevented  easily. 
If  the  public  can  be  persuaded  to  form  the  habit  of 
examining  occasionally  their  flues,  etc.,  the  annual 
contribution  to  negligence  will  be  lessened  by  half  a 
million  dollars. 

“The  729  fires  are  all  from  faulty  construction 
or  deterioration  of  chimneys  or  stove  pipes.  This 
figure  does  not  include  the  125  fires  from  soot  burn- 
ing out,  14  from  cupolas,  nor  5 from  open  stove-pipe 
holes,  neither  does  it  include  any  of  the  666  fires 
chargable  to  sparks  from  chimneys.” 

Under  the  head  of  “Rats  as  Fire  Bugs,”  he 
says:  “Rats  cause  many  fires  and  the  majority  of 
them  go  to  swell  that  always  embarrassing  figure  to 
the  fire  marshal,  the  footings  of  the  fires  reported 


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‘ Origin  Unknown  During  last  year  Ohio  rats  were 
convicted  as  incendiaries  in  twenty-six  cases,  and 
suspected  in  several  hundred.  Eats  and  matches 
are  known  to  have  caused  136  fires  in  Massachusetts 
during  last  year,  with  a loss  of  $133,577  as  reported 
by  the  fire  marshal  of  that  state.  A recent  fire  was 
extinguished  in  its  incipiency,  and  in  a paste-board 
box,  were  found  several  rats  and  some  charred 
matches. 

‘ ‘ This  cost  to  insurance  companies  is  cost  to  the 
whole  people,  for  the  companies  are  but  public  serv- 
ants whose  only  function  is  the  distributing  of  the 
fire  loss  among  property  owners.  The  tenant’s  share 
has  been  collected  in  advance  as  part  of  his  rent.  In 
Ohio  last  year  91  buildings  were  fired  by  hot  ashes 
being  put  in  wooden  boxes  or  thrown  against  the  sid- 
ing of  houses  or  sheds.  This  figure  does  not  include 
the  fires  from  tobacco  pipe  ashes  nor  those  caused 
by  hot  ashes  falling  from  stoves  or  grates.” 

We  have  only  been  able  to  give  a few  brief  ex- 
tracts from  these  reports,  but  want  to  add  a few 
sentences  extracted  from  only  a few  important  head- 
ings. 

4 ‘Tobacco  smokers  cost  the  state  $122,321  in 
1904.  The  great  conflagration  at  Baltimore  and 
at  Knoxville  both  started  with  a smoke  explosion.” 

“Natural  gas  secretes  more  terrible  possibilities 
than  any  other  combustible  used  as  a domestic  fuel. 
Asphyxiation,  which  is  so  common  from  flueless  nat- 
ural gas  stoves  burning  in  the  bed  room,  results  from 
the  breathing  of  this  poisonous  carbon  monoxide, 
produced  by  heating  the  stove  red  hot  and  not  from 


OF  MUTUAL  INSURANCE 


845 


breathing  natural  gas.  The  carbonic  oxides  are  the 
suffocating  element  in  the  smoke  from  all  combus- 
tion. ’ * 

“The  number  of  buildings  fired  by  carelessness 
with  gas  jets  during  the  year  in  Ohio  was  98.  The 
fixture  which  causes  the  most  earnest  criticism  from 
fire  marshals  while  making  inspection  is  the  swing- 
ing jet.  A jet  should  not  be  within  two  and  one 
half  feet  of  the  ceiling.” 

“The  number  of  fatalities  from  the  leaking  of 
illuminating  gas  is  not  only  large  but  increasing. 
Flying  sparks  cost  Ohio  $2,000,000  a year.” 

The  work  of  the  fire  marshal  in  removing  those 
elements  of  danger  which  we  have  designated  as 
material  hazard  is  clearly  indicated  in  the  report  of 
the  state  fire  marshal  of  Connecticut  for  1903,  which 
is  as  follows:  “There  were  1472  fires  reported,  87 
were  either  incendiary,  suspicious  or  mysterious, 
(clearly  incendiary  51),  unknown  318. 

“Moral:— It  is  most  difficult  to  obtain  suffici- 
ent evidence  to  secure  conviction  in  a case  of  arson, 
but  I feel  warranted  in  the  statement  from  the  ex- 
perience in  investigating  fires  of  incendiary  origin ; 
that  the  investigation  has  its  good  effect,  although 
the  incendiary  is  not  apprehended.  The  moral  effect 
is  good  and  may  deter  others  from  an  attempt  at  in- 
cendiarism. 


NECESSITY  OF  INSPECTION. 

“In  order  to  illustrate  the  necessity  of  inspec- 
tions and  show  the  danger  from  accumulation  of  in- 
flammable material,  etc. : while  this  office  was  inspect- 


346 


A HAND  BOOK 


ing  a store  in  the  business  center  of  one  of  our  larger 
cities,  in  descending  the  cellar  stairs,  which  were  cov- 
ered with  paper  and  rubbish,  a match  was  ignited 
by  being  stepped  upon,  starting  a blaze  and  only 
speedy  action  averted  what  might  have  been  a seri- 
ous fire,  as  the  stairs  and  floor  of  the  cellar  were  cov- 
ered to  the  depth  of  fully  six  inches  with  paper  and 
rubbish.  In  my  opinion  the  value  of  inspections, 
that  have  been  carried  on  by  this  office  for  correcting 
conditions,  as  stated  above,  is  one  of  the  important 
branches  of  the  work  of  this  department. ’ ’ 

FROM  MARYLAND. 

The  state  fire  marshal  of  Maryland  in  his  report 
for  1901  said:  “I  have  ample  testimony  to  lead  me 
to  believe  that  the  prompt  work  of  this  department, 
supplemented  by  that  of  the  Baltimore  city  detective 
force,  has  greatly  reduced  the  number  of  incendiary 
fires  in  Maryland.  Besides  the  practical  good  that 
has  been  accomplished  the  moral  effect  of  these  in- 
vestigations, I am  assured,  has  been  felt  throughout 
the  state.” 

The  state  fire  marshal  of  Maryland  in  his  report 
for  1901,  in  discussing  the  subject  of  investigation, 
says : 1 1 The  entire  cost  of  maintaining  the  office  of 
fire  marshal  for  Maryland  is  $5,500,  a mere  pittance 
when  compared  with  the  good  that  has  been  and  may 
be  done  through  this  agency,  without  mentioning 
further  the  moral  effect  of  a perpetual  maintain- 
ance  of  such  a department  of  inquest.  I have  saved 
more  than  the  amount  mentioned  to  the  insurance 


OF  MUTUAL  INSURANCE 


347 


companies  this  year  in  the  blocking  of  several  fire 
loss  claims  on  the  part  of  persons  against  whom 
there  was  not  sufficient  evidence  to  convict  of  incen- 
diarism, but  who  when  the  facts  were  laid  before 
them  by  this  office,  very  discreetly  decided  not  to 
claim  anything  like  the  amount  they  had  originally 
fixed  as  the  total  loss.” 

Men  guilty  of  crime  are  not  always  convicted, 
but  by  precaution  and  vigilance,  the  fire  marshal 
may  be  able  as  in  the  case  cited,  to  prevent  the  crime 
of  extortion  being  added  to  that  of  arson. 

The  state  fire  marshal  of  Ohio  in  his  annual 
report  for  1903  says:  “ Crime  of  whatever  kind  as 
a public  hazard  can  only  be  reduced  to  a minimum 
by  extreme  vigilance  on  the  part  of  the  public  offic- 
ials, followed  by  a rigid  and  certain  execution  of  the 
laws,  and  this  applies  aptly  to  the  crime  of  incen- 
diarism. The  object  of  the  prosecution  of  arson, 
however,  is  not  simply  to  convict  the  guilty,  but 
rather  to  protect  the  community  by  making  conspic- 
ious  the  result  of  wrong  doing,  thereby  deterring 
others  from  committing  like  crimes. 

“This  office  has  investigated  during  the  last 
year  1,664  fires.  In  each  case  a statement  of  the 
facts,  together  with  the  findings  of  the  deputy  or  as- 
sistant making  the  investigation,  is  now  on  file  and 
a part  of  the  records  of  this  office.  Ninety-one  per- 
sons have  been  arrested  charged  with  arson,  five 
fled  from  the  state  before  arrest,  forty-six  were 
bound  over  to  grand  juries,  seventy-six  were  indict- 
ed (many  cases  having  been  taken  directly  to  grand 
juries),  twelve  were  acquitted,  thirty-six  were  con- 


348 


A HAND  BOOK 


victed,  nine  committed  to  insane  asylums  and  twen- 
ty-seven cases  are  pending  trial  at  this  time. 

“The  motives  prompting  those  who  have  com- 
mitted arson  during  the  last  year  have  been  varied, 
but  as  shown  by  table  No.  9 the  desire  to  defraud 
insurance  companies  has  prompted  the  commission 
of  arson  in  more  than  two-thirds  of  the  cases  where 
convictions  have  been  secured ; and  this  is  due  to  the 
fact  that  this  class  of  arsonists  are  largely  in  the 
majority  and  not  because  it  has  been  less  difficult  to 
convict  where  such  a motive  exists.  The  utter  dis- 
regard of  this  class  of  offenders  for  the  property 
and  lives  of  their  neighbors,  makes  them  the  most 
dangerous  and  culpable  of  criminals;  and  yet  the 
examination  of  the  prison  statistics  of  this  state 
shows  that  up  to  the  time  the  fire  marshal  law  went 
into  effect,  there  was  not  an  average  of  two  convic- 
tions each  year  for  burning  property  with  intent  to 
defraud  insurance  companies. 

“There  were  more  successful  prosecutions  for 
this  crime  during  last  year  than  were  had  in  Ohio 
during  the  fifteen  years  preceding  the  establishment 
of  this  office,  and  there  were  more  successful  prosecu- 
tions in  the  three  and  one-half  years  of  its  existence 
than  there  were  in  fifty  years  preceding.  This  suc- 
cess is  gratifying.  The  number  of  convictions  dur- 
ing 1903,  as  shown  by  the  above,  has  far  exceeded 
that  of  any  former  year,  and  there  has  been  a steady 
increase  from  the  beginning.  The  results  obtained 
during  the  last  year  are  in  my  judgment  due  to  the 
efficiency  which  experience  has  made  possible.  The 
barriers  which  invariably  surround  the  ferreting  out 


OF  MUTUAL  INSURANCE 


349 


of  a mysterious  fire  can  only  be  surmounted  by  men 
who  have  natural  tact  for  the  work,  combined  with 
knowledge  of  human  nature  and  experience  in  deal- 
ing with  arson  cases.  The  fact  of  an  increased  num- 
ber of  convictions  for  arson  during  the  past  does  not 
imply  that  incendiarism  is  increasing,  for  a number 
of  those  convicted  were  charged  with  having  com- 
mitted the  crime  several  years  before  this  office  was 
established. 

‘ ‘ It  necessarily  follows  that  the  more  effectually 
incendiarism  is  suppressed,  the  greater  the  possibil- 
ity of  lowering  insurance  rates.  The  interests  of  the 
people  and  of  the  insurance  companies  are  identical. 
The  companies  are  the  agents  of  the  public,  charged 
with  the  distribution  of  trust  funds.  Whenever  a 
company  is  swindled,  the  loss  is  eventually  paid  by 
the  public,  each  member  of  the  community  bearing 
directly  or  indirectly  a share  of  the  burden.  There 
is  no  crime  in  the  category  of  felonies  which  is  com- 
mitted more  often  than  that  of  arson.  Being  so  pre- 
valent, it  is  difficult  in  many  instances  to  secure  a 
verdict  supported  and  demanded  by  the  evidence. 

MAWKISH  SENTIMENT. 

“ Unwarranted  and  perverted  public  sentiment 
for  the  incendiary  who  destroys  his  property  for  the 
insurance,  frequently  carries  acquittal  to  the  hearts 
of  the  jurors,  although  the  facts  and  circumstances 
prove  guilt  quite  beyond  a reasonable  doubt.  To  de- 
fraud an  insurance  company  is  argued  to  be  justifi- 
able, if  not  really  believed,  thereby  creating  a senti- 


350 


A HAND  BOOK 


ment  which  influences  the  commission  of  this  partic- 
ular crime,  increases  the  moral  hazard  and  moulds 
false  verdicts,  a condition  deplored  by  every  honor- 
able and  law-abiding  citizen.  ’ ’ 

The  fire  marshal  of  Ohio  in  his  report  for  1904 
says:  4 ‘One  of  the  important  duties  of  this  office  is 
to  make  universal  the  impression  that  the  incendiary 
will  be  swiftly  prosecuted  and  inevitably  punished. 
That  it  has  a powerful  deterrent  effect  upon  those 
prompted  to  arson  is  shown  by  the  fact  that  the  an- 
nual number  of  fires  has  been  reduced  by  129.  The 
number  of  incendiary  fires  in  the  state  has  regularly 
decreased  since  the  creation  of  the  office  of  fire  mar- 
shal, while  owing  to  the  natural  increase  in  the  num- 
ber of  buildings  in  the  state,  fires  from  accidental 
causes  show  no  such  marked  diminution  in  number.  ’ r 

FROM  MASSACHUSETTS. 

The  state  fire  marshal  of  Massachusetts  in  his 
report  for  1903,  says : “Of  the  total  number  of  fires 
209,  or  4.28  per  cent  were  of  incendiary  origin.  The 
total  sound  valuation  of  property  damaged  by  incen- 
diary fires  was  $1,111,615,  total  insurance  covering 
same  $906,462,  total  loss  on  same  $323,683. 

“Two  hundred  and  fifty-eight  fires  were  of  un- 
known origin.  The  total  sound  valuation  of  prop- 
erty damaged  by  such  fires,  was  $8,731,532,  loss  on 
same  $1,412,560. 

“The  total  number  of  arrests  for  burning  and 
arson  for  1903  was  ninety-seven.  Of  this  number, 
five  cases  under  indictment  have  been  continued  to 


OF  MUTUAL  INSURANCE 


351 


future  terms  of  court.  There  have  been  fifty-seven 
convictions.  Percentage  of  convictions  to  arrests, 
sixty-two. 

“In  reviewing  the  work  of  the  past  year,  it  is 
gratifying  to  find,  that  the  number  of  incendiary 
fires  has  been  less  than  in  any  other  year  since  the 
organization  of  this  department.  I am  also  pleased 
to  report  a reduction  in  the  number  of  fires  of  un- 
known origin.  The  total  for  the  past  year  being 
two  hundred  and  fifty-eight,  as  against  three  hun- 
dred and  sixty-five  for  the  previous  year.” 

The  total  per  cent  of  the  incendiary  fire  loss, 
when  the  fire  marshal  department  was  established, 
amounted  to  thirty-three  per  cent  of  the  annual  fire 
loss. 

In  his  report  for  1904,  the  fire  marshal  says: 
‘ 4 The  total  number  of  arrests  for  arson  in  1904  was 
seventy-nine,  there  have  been  fifty-four  convictions. 
Percentage  of  convictions  to  arrests,  seventy.  Ten 
persons  in  addition  have  been  indicted  and  held  for 
trial. 

“By  an  act  of  the  legislature  the  fire  marshal 
department  was  abolished  and  its  powers  and  duties 
transfered  to  the  detective  department  of  the  dis- 
trict police,  and  placed  in  charge  of  the  able  and 
efficient  officer  Geo.  C.  Neal,  deputy  chief  of  the  de- 
tective and  fire  inspection  department.  Said  act  be- 
came a law  June  8th,  1904,  giving  to  the  members 
of  the  fire  inspection  department  all  of  the  powers 
and  duties  of  a detective  officer  as  well  as  that  of  fire 
inspector. 


352 


A HAND  BOOK 


“ This  was  a move  in  the  right  direction,  as  it  em- 
powered them  with  authority  to  serve  subpoenas  and 
precepts  of  the  court,  investigate  fires,  and  perform 
such  other  detective  duties  as  might  be  assigned  to 
them  by  the  executive  officer.  It  also  provides  that 
the  chief  of  the  department  may  detail  detective  of- 
ficers for  the  investigation  of  fires.  It  is  somewhat 
surprising  to  learn  of  the  carelessness  of  the  public 
generally  as  to  the  cause  of  fires.  It  seems  to  be  the 
inclination  of  the  average  person  who  is  insured  to 
depend  entirely  upon  his  insurance  to  cover  any  loss 
that  may  happen  as  the  result  of  fire  upon  the  prem- 
ises insured.  I have  so  many  examples  of  careless- 
ness regarding  fire,  that  I feel  it  is  my  duty  to  call 
attention  of  the  public  generally  to  their  negligence 
in  this  direction ; and  if  the  advice  were  heeded  many 
accidental  fires  would  be  prevented.  For  instance  the 
use  of  swinging  gas  brackets  near  lace  curtains,  with 
the  window  open  to  the  breeze;  the  use  of  wooden 
cuspidors ; the  careless  use  of  matches  and  kerosene ; 
and  various  other  means  by  which  accidental  fires 
occur. 

“I  would  recommend  that  in  every  household, 
some  means  of  subduing  an  incipient  fire  be  provid- 
ed, such  as  a fire  extinguisher  or  hand  grenade.  This 
oftentimes  would  prevent  a serious  conflagration, 
the  expense  is  trifling  compared  with  the  annual 
loss.” 

The  state  fire  marshal  of  Ohio,  in  his  report  for 
1901,  says:  “The  fire  marshal  law  has  proved  effi- 
cient in  a large  number  of  cases  in  bringing  about  the 


OF  MUTUAL  INSURANCE 


353 


prosecution  and  conviction  of  criminals,  and  has 
been  of  great  benefit  to  local  authorities  in  their  ef- 
forts to  remedy  the  inflammable  condition  of  build- 
ings, and  remove  combustible  material,  especially  in 
the  larger  towns  and  cities. 

ARSON. 

‘ ‘ It  seems  very  difficult  to  impress  upon  the  minds 
of  the  people  that  the  man  who  commits  arson,  jeo- 
pardizes life  as  well  as  property.  It  is  a crime 
against  the  public  at  large.  When  public  opinion  is 
awakened  to  the  fact  that  the  enormous  fire  loss  of 
the  state  is  as  directly  a tax  upon  the  property  of  its 
citizens  paid  to  the  insurance  companies,  in  pre- 
miums and  assessments,  to  be  equalized  and  distri- 
buted as  is  the  school  tax  or  road  tax  paid  to  the 
county  treasurer ; and  whenever  the  public  learns  to 
appreciate  the  fact  that  arson  is  a greater  crime  and 
deserves  more  severe  punishment  than  that  of  burg- 
lary and  equal  felonies ; juries  will  be  guided  in  their 
findings  by  good  law  and  common  sense.  The  burg- 
lar takes  from  the  owner  his  money  and  diamonds 
which  is  a change  of  possession,  the  money  is  still  in 
circulation,  and  the  value  of  the  diamonds  is  not  de- 
stroyed, but  the  fire-bug  turns  property  into  smoke 
and  ashes,  destroys  values,  which  is  a total  loss. 

“Because  of  the  investigations,  arrests  and  con- 
victions made  by  this  department  many  of  our  citi- 
zens are  giving  better  attention  to  the  fundamental 
principles  of  insurance  as  well  as  to  the  different 
causes  for  the  great  fire  waste  in  the  state  and  the 
motives  of  criminals  in  the  cases  of  arson. 

22 


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A HAND  BOOK 


“It  is  invariably  true  that  in  localities  where  in- 
cendiaries have  been  vigorously  prosecuted,  whether 
convicted  or  not,  a more  wholesome  condition  exists. 
In  several  sections  of  the  state  incendiary  fires  had 
been  so  frequent  that  the  insurance  companies  were 
driven  out,  the  loss  being  larger  than  the  premium 
received,  and  the  people  were  unable  to  secure  in- 
demnity at  reasonable  rates,  and  in  some  cases  no 
protection  at  all.  There  were  1,267  fires  of  unknown 
and  incendiary  origin,  the  value  of  property  lost 
was  $2,009,175.  From  the  evidence  taken  and  from 
the  light  of  facts  developed  in  the  examination  of 
fires  of  this  character,  we  believe  that  more  than  one- 
half  of  these  fires  were  of  incendiary  origin.  We 
therefore  estimate  that  during  the  last  year  the  in- 
cendiary caused  a loss  to  the  state  of  Ohio  of  not 
less  than  $1,500,000,  or  nearly  25  per  cent  of  total 
loss  of  $7,232,010.” 

While  the  motives  for  committing  the  crime  of 
arson  are  varied  there  can  be  no  doubt  that  the  pre- 
valent one  is  the  desire  for  pecuniary  profit. 

The  same  officer  in  his  report  for  1902  says: 
“The  incendiary  who  was  actuated  to  set  fire  to  de- 
fraud an  insurance  company  is  observed  to  comprise 
the  largest  class.  He  intelligently  and  carefully  lays 
his  plans  in  some  cases  beginning  months  before  the 
intended  fire  by  padding  the  inventory,  by  disposing 
of  as  much  of  his  stock  as  possible,  etc.  Having  pro- 
cured all  the  insurance  possible  and  carefully  laid 
his  plans  for  the  fire,  etc.— the  fire  occurs.” 

In  an  address  before  the  Ohio  legislature, 
Charles  W.  Whitcomb,  state  fire  marshal  of  Massa- 


OF  MUTUAL  INSURANCE 


355 


chusetts,  said  among  other  things : ‘ 4 The  moral  effect 
of  the  past  work  of  the  office  has  had  a great  deter- 
rent effect  in  preventing  crime,  thereby  saving  lives 
and  property,  by  convincing  those  that  would  other- 
wise apply  the  torch  that  a policeman  was  on  the 
beat  and  that  there  was  therefore  a much  greater 
risk  of  being  criminally  punished  than  under  the 
present  system,  and  also  by  holding  up  before  them 
the  experience  of  many  others,  who  have  found  that 
there  was  no  profit  in  trying  to  defraud  insurance 
companies,  and  the  people  who  honestly  support 
them  in  the  state  of  Massachusetts. 

It  would  seem  as  though  statistics  would  prove 
conclusively  and  to  the  satisfaction  of  every  sister 
state  that  a proper  protection  to  property  and  life, 
which  the  people  have  a right  to  expect  of  their  state 
government  would  demand  universal  establish- 
ment of  similar  systems,  (fire  marshals),  throughout 
the  states.  According  to  statistics  given  in  the 
Chronicle  Fire  Tables  for  1893  and  covering  the 
whole  United  States,  in  ten  states  the  percentage  of 
incendiary  fires  to  the  whole  number  reported  was 
forty  to  eighty,  and  in  nineteen  states  the  percentage 
was  from  twenty  to  forty. 

It  has  a tendency  to  deter  those  who  have  a de- 
sire to  commit  the  crime  of  arson.  The  superinten- 
dent of  insurance  of  Ohio,  after  explaining  the  bene- 
fit of  investigating  all  suspicious  fires,  says:  “Of 
the  total  number  of  convictions  for  arson  the  motive 
of  the  majority  was  to  secure  insurance.  Our  inves- 
tigations have  materially  reduced  the  number  of  fires 
from  this  source.  We  note  that  these  repeating  fire- 


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bugs  have  been  driven  from  Ohio  to  states  where 
there  is  no  fire  marshal,  to  continue  their  detestable 
crimes. 9 9 

It  seems  to  us  that  the  evidence  of  the  necessities 
for,  and  the  advantages  of  a state  fire  marshal  are 
overwhelming;  especially  as  they  do  not  rest  on  a 
mere  theory  of  public  economy,  but  are  fully  verified 
by  the  ample  testimony  of  a number  of  persons  in 
various  states,  who  speak  from  their  own  actual  ex- 
perience in  this  line  of  work. 

Their  testimony  is  especially  valuable,  as  they 
all  agree  in  their  evidence  upon  every  important 
point  and  with  the  judgment  and  experience  of  all 
capable  officers  who  have  investigated  the  subject. 

It  is  in  line  with  universal  experience  and  com- 
mon sense.  This  office,  therefore,  is  an  imperative 
necessity  in  every  civilized  state. 

BETTER  CONSTRUCTION. 

The  average  frame  dwelling  house  is  a fire  trap. 
The  wonder  is  not  that  so  many  burn,  but  that  so 
many  escape  being  reduced  to  ashes.  Insurance  com- 
panies are  beginning  to  see  that  the  loss  rate  might 
be  materially  reduced  and  are  commencing  a series 
of  investigations  which  will  in  due  time  furnish  valu- 
able information.  The  problem  to  be  solved  is  how  to 
change  the  present  method  of  construction  so  that 
buildings  may  be  made  safer  without  any  appreciable 
increase  of  cost  for  labor  or  material.  It  is  evident 
that  great  changes  in  the  style  of  work  are  almost  in- 
variably accompanied  by  increase  of  cost.  This  must 
be  avoided. 


OF  MUTUAL  INSURANCE, 


357 


Inspecting  in  cases  of  fire,  observing  the  prog- 
ress of  conflagrations,  following  the  course  of  the 
blaze  from  the  beginning  to  the  end,  all  this  work  will 
give  valuable  information  as  to  where  and  how  fires 
start  and  how  they  spread,  what  styles  of  construc- 
tions permit  the  easy  extinguishment  of  flames,  and 
how  present  constructions  often  make  it  impossible 
to  save  a building  if  the  flames  once  get  started. 

Beginning  with  the  foundation,  it  should  be  solid 
and  vermin  proof.  The  material  should  be  laid  in 
cement  or  plaster,  and  the  whole  should  rest  upon  a 
footing  course  below  frost,  wider  than  the  foundation 
wall,  and  projecting  out  beyond  it  nearly  a foot. 
Vermin  will  dig  under  an  ordinary  straight  wall,  but 
when  they  go  down  and  come  to  what  appears  to  be  a 
flat  rock  they  will  give  up  the  effort.  Most  founda- 
tions are  now  made  in  this  manner.  When  the  super- 
structure is  erected  the  spaces  above  the  foundation 
and  between  the  joists  should  be  solidly  filled  with 
brick,  cement  blocks,  or  other  solid  material.  This 
will  prevent  vermin  getting  through  from  the  cellar 
to  the  upper  part  of  the  house.  And  if  a fire  occurs 
in  the  cellar  it  will  prevent  it  from  running  up  be- 
tween the  plastering  and  the  siding.  The  extra  ex- 
pense of  doing  all  this  work  thoroughly  is  a mere 
trifle,  the  resulting  comfort,  safety,  saving  in  fuel, 
freedom  from  danger  of  freezing  in  the  cellar,  and 
the  riddance  from  vermin  will  pay  for  it  many  times 
over  every  year.  The  house  will  stand  firmer,  there 
will  be  no  trouble  with  windows  and  doors  and  the 
building  will  last  many  years  longer. 


358 


A HAND  BOOK 


DANGEROUS  PLACES. 

In  erecting  the  building,  it  is  usual  to  put  on 
sheeting  and  siding  and  to  leave  air  spaces  between 
these  and  the  lathing  and  plastering  on  the  inside. 
These  air  spaces  not  infrequently  run  from  the 
ground  to  the  roof.  If  a fire  gets  into  one  of  these, 
the  draft  is  strong,  and  no  water  can  he  made  to 
reach  the  blaze  even  if  it  could  be  located.  There  is 
nothing  to  do  but  to  let  it  burn  through  one  side  or 
the  other.  There  is  especial  danger  from  collections 
of  trash,  dead  leaves,  etc.,  against  the  sides  of  houses 
in  dry  weather.  A spark  falling  in  one  of  these  piles 
smolders  a while,  the  draft  up  the  air  space  fans  it 
into  a fire  and  then  there  is  trouble.  The  firemen 
arrive  and  to  find  the  fire  they  rip  off  siding  and 
sheeting  on  the  outside,  cut  holes  through  the  plaster- 
ing on  the  inside  and  thus  no  end  of  damage  occurs. 
If  the  style  of  construction  described  above  had  been 
adopted,  and  in  addition  the  air  spaces  between  the 
plastering  and  siding  had  been  shut  off  by  a layer  of 
grout,  cement,  brick  or  anything  which  a rat  could 
not  dig  through,  the  danger  of  all  such  fires  would 
have  been  avoided. 

At  each  floor,  care  should  be  taken  to  shut  off  the 
air  spaces  in  the  same  manner.  No  places  for  fire 
should  be  left  between  the  walls.  The  question  may 
be  asked,  Why  is  so  much  emphasis  placed  upon 
keeping  out  rats?  For  several  reasons.  The  holes 
which  they  gnaw  through  the  walls  let  fire  through  in 
case  it  breaks  out,  they  gnaw  matches  and  thus  start 
fires,  and  they  accumulate  rags  and  grease  in  their 


OF  MUTUAL  INSURANCE 


859 


nests  and  thus  prepare  the  necessary  conditions  for 
spontaneous  combustion.  In  addition  to  these  dis- 
agreeable characteristics  the  rat  is  dirty,  destructive, 
and  carries  contagious  diseases. 

The  construction  of  chimneys  is  discussed  else- 
where. It  is  only  necessary  to  repeat  here  that  they 
should  be  on  a solid  support,  should  be  smooth  out- 
side and  inside  and  well  constructed.  They  should  be 
high  enough  to  have  good  draft  and  to  throw  all 
sparks  clear  of  the  building. 

The  inside  woodwork  should  be  hardwood  where 
the  cost  is  not  prohibitive.  If  of  pine,  it  should  be 
finished  with  some  slow-burning  paint  or  varnish. 
The  common  materials  used  for  such  purposes  are 
dangerous  in  the  extreme. 

Ornamental  cornices  and  all  such  work  should 
be  of  metal.  Roofs  should  be  of  slate  or  metal  wher- 
ever practicable.  If  of  shingles  they  should  be  dip- 
ped in  some  slow-burning  paint  before  being  laid  on. 
The  nature  of  the  paint  should  be  ascertained  by 
actual  experiment,  testing  a few  shingles  prepared 
with  it  in  comparison  with  an  equal  number  in  their 
natural  state.  Shingles  which  wrinkle  up  and  catch 
dirt  should  be  removed.  They  make  good  lodging 
places  for  sparks. 

This  is  simply  a description  of  a well  built  house. 
The  difference  between  it  and  a poorly  built  house 
in  comfort,  durabilty  and  fire  risk  is  enormous,  while 
the  cost  is  almost  the  same.  The  materials  in  both 
are  the  same  in  cost  for  the  most  part.  A trifle  extra 
is  expended  on  the  foundation,  a little  on  the  shutting 
of  the  air  spaces.  There  should  be  no  other  extra 


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A HAND  BOOK 


expense,  as  finishing  and  painting  should  cost  no 
more  in  one  style  than  in  the  other. 

This  style  of  building  recommends  itself.  It  sim- 
ply needs  explaining  to  the  public.  Mutual  agents 
can  do  a great  service  to  the  public  in  their  inspec- 
tions if  they  call  the  attention  of  property  owners  to 
the  defects  and  dangerous  exposures  in  their  build- 
ings. While  the  best  time  to  rectify  all  these  mat- 
ters is  when  the  building  is  being  erected,  there  are 
many  errors  which  can  he  corrected  afterwards.  All 
that  the  agent  can  do  to  reduce  the  loss  will  help  the 
company,  help  his  neighbors,  and  help  himself.  If 
the  fire  loss  can  he  reduced  it  will  of  course  follow 
that  the  fire  premiums  will  be  reduced  also. 

The  means  of  preventing  or  extinguishing  fires 
should  be  looked  after.  What  is  the  water  supply? 
Is  there  a well  close  at  hand,  with  a good  pump  and 
a tank  always  full  of  water,  or  is  it  at  a distance,  and 
provided  only  with  a rope  and  bucket  ? 

Wliat  kind  of  protective  apparatus  is  at  hand? 
Hand  extinguishers  are  sold  and  many  are  recom- 
mended. But  in  the  ordinary  dwelling  house  they 
are  rarely  seen.  Many  people  make  it  a custom  to  fill 
two  or  three  buckets  with  water  every  evening  and 
leave  them  where  they  will  be  handy  should  fire 
break  out  in  the  night.  This  is  commendable,  one  or 
two  buckets  of  water  might  be  kept  on  the  upper 
floors. 

HOW  TO  FIGHT  FIRE. 

A few  hints  on  how  to  fight  fire  will  be  useful. 
The  first  necessity  is  self  control.  It  is  well  to  be 
energetic  but  not  well  to  exert  so  much  force  as  to 


OF  MUTUAL  INSURANCE 


361 


break  the  pump  handle  at  the  very  first  stroke.  It 
is  well  also  to  know  what  kind  of  a fire  is  to  be  put 
out,  and  then  to  use  the  right  means.  Oil,  varnish, 
turpentine,  gasoline,  and  similar  materials  can  be 
smothered  out  with  blankets,  or  absorbed  by  fine 
dust,  ashes,  sand,  flour,  etc.  The  blaze  once  smoth- 
ered, the  trouble  is  over,  the  rest  of  the  work  is  easy. 
But  water  thrown  upon  such  a fire  will  scatter  it. 
Woolen  blankets  are  best  to  use  for  such  purposes, 
and  if  there  is  time,  they  should  be  wet.  Should  one ’s 
clothing  take  fire,  smother  it  out  with  blankets,  rugs, 
carpets  or  anything  handy  and  do  it  quick.  In  all 
these  cases  use  water  to  extinguish  the  embers  after 
the  blaze  has  been  put  out. 

If  fire  breaks  out  in  anything  which  can  be  han- 
dled, in  a box  or  barrel,  if  a lamp  or  gasoline  stove 
takes  fire  it  should  be  thrown  out  of  doors.  If  a 
lamp  upsets  and  breaks,  smother  the  blaze  with  a 
cloth.  In  most  cases  it  is  best  not  to  open  the  doors 
and  windows  and  let  in  the  air. 

When  fire  occurs  in  a closet,  or  the  floor,  or  in  the 
side  wall,  water  is  the  thing.  Women  often  mop  out 
fires  in  such  places,  and  one  cool  headed  woman  with 
a mop  is  worth  a dozen  excited  men  and  boys.  People 
who  have  helped  put  out  prairie  fires  know  the  effici- 
ency of  a wet  gunny  sack  in  slapping  out  a blaze. 
These  methods  are  available  where  the  water  supply 
is  limited.  There  should  be  a ladder  at  every  resi- 
dence long  enough  to  reach  the  roof.  It  may  be  use- 
ful in  saving  life  or  property  if  the  stairs  should 
catch  fire. 


362 


A HAND  BOOK 


Barns,  stables,  and  similar  buildings  are  gener- 
ally a total  loss  if  the  fire  gets  a good  start.  A fire 
in  a haymow  is  generally  uncontrollable  as  there  is 
usually  nothing  at  hand  to  fight  it  with.  If  the  fire 
is  confined  to  a small  space  it  may  be  smothered  with 
blankets,  wagon  sheets  and  other  hay,  but  water  must 
follow  at  once.  The  tramp  and  his  pipe  are  the 
cause  of  many  haymow  fires  and  the  vagrant  never 
gives  an  alarm  but  sneaks  off,  leaving  the  property 
to  burn.  Similar  conditions  sometimes  exist  when 
boys  engage  in  forbidden  sports. 

Coolness  and  self  possession  are  absolutely 
necessary.  An  excited  man  will  do  more  harm  than 
good.  He  will  open  the  doors  and  windows  to  give 
a fire  draft,  he  will  throw  water  anywhere  but  on  the 
fire,  and  he  will  destroy  nearly  everything  he  tries 
to  remove  from  the  house.  Old  firemen  know  that 
this  picture  is  not  in  the  least  exaggerated.  In  fact, 
at  a fire  it  is  often  necessary  to  make  a detail  to 
keep  those  excited  people  out  of  mischief.  But  cool, 
prompt  action  will  often  save  a building  when  the 
case  at  first  appears  hopeless. 

The  state  fire  marshal  of  Ohio  has  made  some 
figures.  After  showing  that  the  fire  losses  distribute 
themselves  all  over  the  community,  he  says:  4 4 The 
annual  fire  loss  plus  the  cost  of  fire  departments  is 
equal  to  fifteen  per  cent  of  the  total  year’s  product 
of  all  the  industries  of  the  state.  So  each  producer 
gives  one  and  a half  hours  out  of  each  ten  hour  day 
to  make  good  the  fire  loss.” 


CHAPTER  XVIII. 


LIVE  STOCK  INSURANCE. 

There  is  much  disagreement  on  this  question, 
not  only  among  companies  widely  separated,  but 
among  those  operating  in  the  same  territory.  No 
plan  has  been  evolved,  adapted  to  all  companies,  as 
risks  vary  in  different  localities.  A herd  on  the 
Colorado  range  and  cattle  in  a well  fenced  Ohio  pas- 
ture are  very  different  risks,  while  on  the  Pacific 
coast  there  is  no  danger  whatever  from  lightning. 

Perhaps  the  oldest  plan  is  the  go-as-you-please 
method  of  permitting  each  policy  holder  to  place 
what  insurance  he  pleases  upon  his  cattle,  without 
regard  to  number  or  value,  and  when  a loss  occurs 
pay  him  for  what  has  been  killed  up  to  the  full 
amount  of  his  policy.  This  plan  certainly  has  the 
merit  of  simplicity.  Occasionally,  a company  is 
found  which  still  adheres  to  it  and  claims  that  it  is 
satisfactory,  but  most  companies  say  that  experience 
has  taught  them  that  it  is  not  equitable,  that  an 
undue  proportion  of  the  income  of  the  company  is 
required  to  pay  for  losses  on  live  stock. 

VARIOUS  PLANS 

Various  modifications  have  been  tried.  Some 
limit  the  amount  to  be  paid  on  each  animal  to  a spe- 
cific sum,  or  to  a certain  proportion  of  its  value; 

—363 


364 


A HAND  BOOK 


others  insist  that  a certain  proportion  of  the  herd 
shall  be  insured;  others  still  combine  both  these 
methods.  Companies  were  driven  to  adopt  these 
plans  by  the  complaint  about  assessments  by  those 
who  had  no  live  stock.  At  the  outset  a cattle  man 
with  a hundred  head  would  insure  ten,  but  when  one 
was  killed  by  lightning,  it  was  always  one  of  the  ten. 
Owners  of  buildings  and  personal  property  com- 
plained that  the  cattle  man  could  protect  his  herd 
by  insuring  a small  part  of  it,  while  they  had  to  in- 
sure the  whole  of  their  property.  But  the  real 
trouble,  after  all,  was,  as  above  stated,  the  fact  that 
the  live  stock  did  not  pay  its  losses. 

Meanwhile,  many  companies  began  a careful 
investigation  of  their  books.  They  found  exactly 
what  this  class  of  risks  costs,  and  were  then  prepared 
to  act  intelligently.  Of  course  the  matter  was  not 
easily  arranged.  Occasionally  a company  cut  the 
knot  it  could  not  untie  and  erected  the  live  stock 
insurance  into  a department  by  itself,  paying  its 
own  losses  from  its  own  assessments.  Generally  the 
changes  were  along  other  lines.  At  first  the  propor- 
tion of  the  cattle  to  be  insured  was  increased  to  half 
or  three-fourths.  Finally  many  companies  adopted 
the  plan  of  paying  pro  rata  for  losses.  If  a hundred 
cattle  were  insured  for  a thousand  dollars,  in  case  of 
loss  the  owner  would  receive  ten  dollars  each.  In 
case  he  added  to  the  herd  he  increased  the  points  of 
risk  and  the  sum  in  his  policy  would  still  be  divided 
by  the  number  of  his  herd  to  ascertain  the  amount  to 
be  paid  for  each  animal  in  case  of  loss.  The  same 
principle  would  apply  if  he  reduced  his  herd.  He 


OF  MUTUAL  INSURANCE 


365 


would  get  a larger  sum  for  each  animal  up  to  a cer- 
tain amount  named  in  the  policy.  Prudent  policy 
holders  generally  notify  the  company  of  changes 
and  have  them  entered  on  the  policy  and  thus  save 
all  trouble.  Under  these  circumstances,  live  stock 
pays  its  proportion  and  each  policy  holder  knows  just 
what  he  is  doing.  Another  change  from  early  meth- 
ods is  in  dealing  with  valuable  animals,  stallions, 
pedigreed  stock,  etc.  Formerly  they  were  appraised 
and  paid  for  along  with  the  others.  Then  the  limit 
was  put  on  which  reduced  them  to  the  level  of  or- 
dinary stock.  This  was  equally  unsatisfactory. 
There  seems  to  he  no  better  method  than  insuring 
such  animals  by  themselves,  by  name,  number  or 
description,  and  placing  a value  upon  each. 

PROOF  OF  LOSS. 

Direct  proof  is  not  to  be  had  under  ordinary  cir- 
cumstances. Rarely  does  anyone  see  an  animal 
knocked  down  by  lightning.  Usually  the  owner, 
looking  over  his  field,  finds  it  dead.  What  killed  it? 
There  are  no  indications.  There  was  a storm  a few 
days  ago,  it  must  have  been  the  lightning.  So  a 
couple  of  neighbors  are  summoned,  they  agree  with 
the  owner  and  the  necessary  affidavits  are  made  out 
and  sent  in  and  the  company  pays.  That  is  all.  True, 
there  are  occasionally  other  indications,  as  when 
dead  animals  are  found  along  a wire  fence  or  under 
a splintered  tree,  but  usually  it  is  as  above  stated. 

All  indications  for  ascertaining  whether  or  not 
the  animal  has  been  killed  by  lightning,  such  as  loose 
teeth,  black  tongue,  etc.,  have  so  far  proved  totally 


366 


A HAND  BOOK 


useless.  Possibly  dissection  by  a competent  veterin- 
ary surgeon  might  sometimes  show  that  lightning 
was  not  the  cause  of  death,  but  to  make  such  examin- 
ations would  generally  cost  more  than  to  pay  the 
claim. 

No  exclusive  method  can  be  laid  down.  Local 
conditions,  old  customs,  etc.,  will  require  companies 
to  adopt  different  methods  in  different  places  and 
live  stock  insurance  is  no  exception  to  the  general 
rule. 


RATES. 

The  rate  for  insurance  against  loss  by  lightning 
will  vary  with  the  climatic  conditions  of  the  locality, 
thunder  storms  being  more  prevalent  in  some  re- 
gions than  in  others.  But  in  all  cases  where  there 
are  wire  fences  a reduction  should  be  made  when  the 
wires  are  properly  grounded.  This  can  be  done  by 
attaching  wire,  preferably  a size  larger  than  the 
fence  wire,  and  burying  the  ends  in  the  ground. 
Care  should  be  taken  that  ground  wires  come  into 
actual  contact  with  the  fence  wires.  They  should 
be  twisted  tightly  two  or  three  times  around  them. 
Where  one  wire  is  used,  as  for  telephone  purposes,  it 
must  remain  insulated,  but  the  others  should  be 
grounded.  Telegraph  companies  use  a lightning  ar- 
rester, something  like  a comb  with  sharp  teeth  almost 
in  contact  with  the  wire.  It  draws  off  the  electri- 
city. Something  like  this  will  probably  be  made  for 
use  on  fence  wires  and  telephones.  A wire  fence, 
properly  grounded,  is  a protection  to  cattle  in  a 
field ; if  not  grounded,  it  is  an  element  of  danger. 


OF  MUTUAL  INSURANCE 


367 


FROM  AN  OLD  ADJUSTER. 

The  following  article  is  by  V.  Goodsheller  of 
McPherson,  Kansas.  It  covers  the  ground  and  fur- 
nishes much  valuable  information. 

In  six  and  one-half  years  as  adjuster  for  the 
Farmers’  Alliance  Insurance  Company  of  McPher- 
son, Kansas,  I have  had  some  little  experience  in 
adjusting  live  stock  losses. 

When  we  first  commenced  insuring  live  stock, 
we  issued  a blanket  clause  on  all  live  stock  owned  by 
the  assured  and  the  contract  read  that  the  assured 
carry  not  less  than  one-half  on  all  live  stock  owned 
and  in  case  of  loss  the  company  should  pay  market 
value  of  animals  killed. 

The  first  difficulty  encountered  under  this  clause 
was  that  assured  would  increase  his  herd  in  some 
cases  to  ten  times  the  number  and  value  of  insur- 
ance carried  and  still  expect  and  insist  on  the  com- 
pany paying  him  market  value  in  case  of  loss.  This 
we  did  for  awhile,  hut  found  that  live  stock  insurance 
under  such  a contract  did  not  pay  its  way.  Of 
course  the  deficiency  had  to  be  met  from  premiums 
and  assessments  received  from  insuring  other  prop- 
erty, which  was  burdensome  to  those  of  our  patrons 
who  did  not  increase  their  herd  or  who  carried  in- 
surance only  on  other  property.  So  we  evolved 
the  plan  of  prorating  the  man  who  had  increased  his 
herd  by  making  him  furnish  a statement  of  the 
value  of  his  live  stock  at  time  of  loss.  If  he  carried 
$500  insurance,  the  company  would  pay  him  market 
value  provided  the  market  value  of  all  his  stock  at 


868 


A HAND  BOOK 


the  time  when  the  loss  occurred  did  not  exceed 
$1,000,  but  if  his  stock  invoiced  $2,000,  he  would 
only  get  one-half.  But  even  this  plan  did  not  equal- 
ize the  premiums,  so  we  tried  the  three-fourths  plan, 
making  the  assured  carry  or  pay  premium  on  three- 
fourths  value  of  live  stock  in  order  to  obtain  market 
value,  allowing  him  to  increase  his  herd  twenty  per 
cent  before  we  would  pro  rate  him  on  a loss.  This 
plan  we  also  found  inefficient  and  complicated,  for 
the  average  farmer  gets  confused  when  you  talk  to 
him  of  percentages  and  prorating.  At  last,  however, 
we  hit  upon  the  plan  of  always  paying  according  to 
insurance  carried.  The  assured  may  carry  $10,  $15 
or  $30  a head  on  his  cattle,  and  in  case  of  loss  the 
amount  he  carries  is  always  divided  by  the  number 
of  head  he  owns  at  the  time  of  loss,  with  a proviso, 
however,  that  the  company  shall  in  no  case  he  liable 
for  more  than  double  the  amount  placed  on  each  head 
by  assured. 

Under  this  plan  the  assured  receives  just  exactly 
what  he  pays  premium  on  and  no  more.  We  have 
had  this  plan  in  operation  over  six  years  and  find  it 
gives  satisfaction  to  both  the  company  and  its  pat- 
rons. There  is  no  haggling  over  the  price  or  value 
of  the  animal  killed;  when  proof  is  made  the  loss 
adjusts  itself. 

PARTICULARS  REQUIRED. 

But  the  proof  is  where  the  rub  comes  in.  We 
require  a sworn  statement,  substantiated  by  sworn 
statements  of  at  least  two  witnesses,  living  contig- 
uous to  claimant,  both  being  land  owners. 


R.  M.  SCOTT,  PITTSBURG,  KANSAS. 

Mr.  Scott  is  the  president  of  the  National  Mutual  Insurance 
Association  of  Pittsburg,  a go  ahead  institution  which  is  growing 
rapidly.  Mr.  Scott  is  energetic,  active,  and  is  a thoroughgoing  co- 
operator.  He  never  loses  an  opportunity  to  advocate  the  cause 
he  has  espoused. 


c.  m.  McMillan,  carthage,  mo. 

Mr.  McMillan  is  president  of  the  Carthage  District  Mutual 
Cyclone  Insurance  Company,  is  state  vice  president  of  the 
National  Association  of  Mutual  Association  of  Mutual  Fire  In- 
surance Companies,  has  filled  the  position  of  vice  president  and 
acted  on  several  important  committees.  He  farms  on  an 
extensive  scale,  is  a thorough  business  man,  and  a strong  ad- 
vocate of  Mutualism,  especially  of  Mutual  Fire  Insurance. 


OF  MUTUAL  INSURANCE 


369 


1st.— Giving  date  and  hour  as  near  as  possible 
when  animal  was  killed. 

2nd.— That  there  was  an  electrical  storm  at  that 
time. 

3rd.— How  long  before  the  storm  the  animal  was 
seen. 

4th.— What  marks  were  found  on  animal  to  indi- 
cate lightning. 

5th.— How  long  after  the  storm  the  animal  was 
found. 

6th.— Give  position  of  body  when  found. 

7th.— Give  distance  from  wire  fence,  trees  or 
buildings  where  body  was  found. 

8th— Were  there  any  marks  of  lightning  on 
these  ? 

9th.— State  where  such  animal  was  when  killed, 
or  injured,  whether  in  barn,  on  prairie  or  on  public 
highway. 

10th.— Did  you  have  any  other  insurance  on 
such  animal  when  killed,  if  so,  give  name  of  company 
and  for  what  amount. 

11th.— Was  such  animal  perfectly  healthy  pre- 
ceding the  storm,  if  not,  state  in  what  respect. 

12th.— Had  such  animal  ever  been  sick  or 
diseased?  If  so,  state  particularly  when  and  what 
the  nature  was. 

13th.— By  whom  was  the  dead  animal  first  dis- 
covered 1 

14th— That  the  said  deponent  further  states  that 
nothing  has  been  done,  or  by  his  privity  or  consent 

23 


370 


A HAND  BOOK 


to  violate  the  conditions  of  his  policy  or  render  it 
void. 

15th.— We  require  a complete  invoice  of  all 
stock  owned  of  the  class  in  which  loss  occurred,  also 
sworn  to. 

And  a number  of  other  questions  of  minor  im- 
portance relating  to  ownership  and  different  kinds 
of  stock. 

ILLEGITIMATE  LOSSES. 

And  yet,  in  spite  of  these  precautions,  we  pay 
for  a number  of  illegitimate  losses  in  the  course  of 
each  year. 

A great  many  report  stock  killed  by  lightning 
that  is  found  in  such  a state  of  decomposition  that  no 
one  can  tell  whether  it  was  killed  by  lightning  or 
died  from  disease  and  we  are  often  compelled  to 
send  the  proof  hack  for  more  explicit  evidence  or 
send  an  adjuster  for  personal  investigation. 

I remember  in  one  case  where  notice  of  loss  was 
sent  to  the  company,  proof  blanks  were  sent  the 
party,  but  he  refused  to  make  any  sworn  statement. 
On  personal  investigation  I found  that  the  animal 
killed  was  owned  by  son  of  assured  who  was  of  age 
but  carried  no  insurance  and  I told  the  assured  he 
had  no  claim  as  the  insurance  contract  covered  only 
his  own  property,  so  he  withdrew  his  claim. 

In  another  case,  a report  of  loss  was  sent  to  the 
company.  I investigated  the  claim  and  found  that 
a straw  stack  undermined  by  cattle  eating  during  the 
winter  had  toppled  over  onto  a heifer,  smothering 
her  to  death,  and  succeeded  in  having  the  claim  with- 
drawn. 


OF  MUTUAL  INSURANCE 


371 


In  another  case  a man  reported  a horse  killed 
by  lightning,  standing  in  a stall  in  the  barn.  I in- 
vestigated the  same  personally,  found  no  evidence 
of  lightning  on  the  barn  nor  on  any  of  the  surround- 
ings, so  this  claim  was  rejected. 

Another  case.  A steer  was  reported  killed  by 
lightning  in  a wood  pasture,  which  was  also  used  for 
a hog  pasture.  On  personal  investigation  I found 
that  the  animal  had  been  eaten  up  by  hogs  and  when 
found  nothing  but  the  bones  remained  to  tell  the 
story,  and  what  kind  of  proof  could  be  furnished  in 
such  a case,  when  immediate  surroundings  of  the 
place  where  bones  were  found  showed  no  evidence  of 
lightning?  Of  course  this  claim  was  rejected. 

And  thus  I could  go  on  indefinitely,  citing  case 
after  case  where  proofs  were  insufficient  on  which 
to  base  a legitimate  claim. 

ANOTHER  DIFFICULTY. 

Then  there  is  another  difficulty  that  sometimes 
confronts  us.  In  our  application  and  policy  are 
three  clauses,  for  horses,  mules  and  colts,  viz. : 


On  work  horses,  not  exceeding  $ on  any  one. 

On  mules,  not  exceeding  - $ on  any  one. 

On  colts,  not  exceeding  - - $ on  any  one. 


A man  places  insurance  on  work  horses  only, 
has  a colt  killed,  sends  in  a report  of  loss— colt  was 
killed  by  lightning.  We  write  back  to  him  that  he 
has  no  insurance  on  colts,  and  consequently  no  claim 
against  the  company.  In  the  majority  of  cases  he 
comes  back  to  us  rough-shod,  says  when  the  agent 
wrote  him  he  understood  the  insurance  would  cover 


372 


A HAND  BOOK 


colts  also,  and  if  the  company  refused  to  pay  their 
legitimate  (?)  losses,  he  was  done  with  them,  and 
they  should  at  once  send  him  back  his  premium  and 
cancel  him  out.  But,  on  the  other  hand,  if  he  loses  a 
work  horse  he  is  very  careful  to  call  the  attention  of 
the  company  to  the  fact  that  while  he  has  three  colts, 
they  were  not  insured  and  his  insurance  applies  to 
work  horses  only  and  must  be  so  computed. 

The  same  applies  to  cattle.  The  assured  in  mak- 
ing out  proof  of  loss  sometimes  claims  that  calves 
were  or  were  not  insured,  as  the  case  may  be. 

So  the  adjuster  and  executive  board  are  quite 
frequently  up  against  it;  however,  we  try  to  do  our 
duty  and  treat  all  our  patrons  alike,  for  every  dollar 
paid  out  for  illegitimate  losses  in  a Mutual  company 
is  an  unjust  tax  on  all  honest  policy  holders,  and  the 
adjuster,  with  the  executive  board,  must  act  as  a 
check  to  all  such  grafting  and  dishonesty. 


CHAPTER  XIX. 


HAIL  INSURANCE. 

Insurance  against  the  elements,  hail,  wind  and 
electricity,  differs  from  fire  indemnity  in  the  fact 
that  no  human  agency  is  concerned  in  the  causes  of 
loss.  Care  cannot  avoid  disaster,  nor  does  negli- 
gence invite  harm,  from  hail  or  wind.  There  is  and 
can  be  nothing  corresponding  to  incendiarism  or 
arson. 

The  coming  of  a destructive  storm  cannot  be 
foretold.  Weather  prophets  have  attempted  it  from 
time  immemorial  but  beyond  the  indications  for  a 
few  hours  in  advance,  their  predictions  have  all 
proved  failures  and  the  theorists  have  followed  each 
other,  in  unbroken  procession,  into  the  shades  of 
oblivion,  and  the  weatherwise  of  today  will  soon  be 
forgotten,  even  as  their  predecessors  were. 

The  available  statistics  have  not  furnished  in- 
formation of  much  value.  Hail  companies  have  kept 
careful  records,  they  have  mapped  every  storm  re- 
ported to  them,  they  have  compiled  the  results,  and 
have  arrived  at  conclusions  only  to  discover  that 
circumstances  may  change  at  any  time  and  this  in- 
formation, gathered  at  so  much  cost,  may  at  once 
become  useless. 


—373 


374 


A HAND  BOOK 


AN  UNFOUNDED  THEORY. 

For  some  years  the  theory  prevailed  that  storm 
regions  of  the  Mississippi  valley  and  the  plains  were 
permanently  located,  that  there  were  areas  where 
there  were  frequent  hail  storms  and  others  where 
they  were  unknown.  Experienced  hail  insurance 
men  have  given  up  this  idea.  They  cite  instances 
of  long  exemption,  in  one  case  forty  years,  only  to  be 
followed  by  terrible  destruction. 

Different  ratings  are  made  for  different  states 
by  some  companies  but  it  is  doubtful  if  the  regions  in 
which  the  risks  are  not  the  same  are  bounded  by 
state  lines,  and  these  boundaries  are  by  no  means 
permanent,  but  change  with  the  seasons. 

That  the  climate  and  the  rainfall  of  vast  tracts 
of  land  may  become  permanently  modified  is  a the- 
ory often  advanced  but  the  weather:  records  of  many 
years  past  do  not  give  it  support.  The  storm  regions 
of  the  country  have  been  mapped.  But  how  and  why 
the  storms  within  these  areas  take  their  courses  is 
not  known,  nor  is  it  possible  to  make  any  accurate 
predictions  as  to  what  the  weather  will  be  in  any 
particular  year  or  series  of  years. 

Local  hail  companies  have  learned  this  lesson. 
They  have  discovered  that  they  may  operate  smooth- 
ly and  prosperously  for  three  or  four  years  and  then 
matters  may  change  and  they  may  have  as  many 
years  of  disaster.  To  fit  the  rates  to  these  conditions 
is  one  of  the  problems  which  has  caused  the  hail  com- 
panies much  anxious  thought. 


OF  MUTUAL  INSURANCE 


375 


PECULIAR  CONDITIONS. 

In  fire  insurance  the  hazard  is  continual.  Ad- 
vance premiums  are  not  fully  earned  till  the  lapse 
of  an  entire  year.  Hence  the  necessity  of  a fund 
large  enough  not  only  to  pay  current  losses  and  ex- 
penses but  to  re-insure  all  risks.  With  the  hail  com- 
pany the  hazard  begins  when  the  policy  is  taken  out 
in  the  spring  and  closes  when  the  crop  should  be 
harvested,  anywhere  from  July  15,  to  October  15, 
according  to  the  grain  insured.  The  rest  of  the  year 
there  is  no  risk.  For  this  reason  most  companies 
which  insure  for  only  one  year  settle  up  everything 
in  the  fall  and  hibernate  till  the  next  spring.  If  such 
companies  would  always  levy  assessments  or  collect 
cash  sufficient  to  pay  losses  in  the  very  worst  years 
they  would  need  no  reserve.  Those  which  do  so  and 
which  have  never  been  obliged  to  pro  rate  are  by  no 
means  numerous. 

The  extreme  variation  of  the  seasons  renders  it 
impossible  to  avoid  an  occasional  heavy  assessment. 
Then  there  is  dissatisfaction.  Generally  there  are 
many  who  leave  the  assessments  unpaid.  Owners  of 
farms  can  be  reached,  tenants  with  long  leases  are 
generally  prompt  in  paying,  but  many  of  the  migrat- 
ing class  change  their  location  and  leave  their  assess- 
ments unpaid.  It  is  evident  that  much  depends  on 
the  character  of  the  community  in  which  the  com- 
pany does  business.  If  the  members  are  mostly  farm 
owners,  and  the  few  rented  farms  are  looked  after 
by  their  proprietors,  there  will  be  but  little  loss  of 
assessments,  and  the  method  under  discussion  can  be 


376 


A HAND  BOOK 


safely  adopted.  In  some  states,  however,  the  total 
assessment  is  limited  and  in  these,  there  mnst  he  an 
occasional  pro  rating  of  losses. 

Several  companies  doing  business  on  this  plan 
have  reported  to  the  committee.  As  to  whether  it  is 
a success  or  not,  they  are  about  evenly  divided.  They 
all  favor  a reserve.  How  large  this  reserve  should 
be  is  a question  which  would  be  answered  according 
to  the  locality.  Some  companies  have  paid  in  full 
under  a limit  of  3 y2  per  cent  assessments,  while  oth- 
ers require  from  4%  to  7. 

Much  also  depends  on  the  amount  of  risk  accept- 
ed by  the  company.  Some  take  all  that  is  offered, 
while  others  will  insure  only  160  acres  in  a section, 
or  $1,000  in  value.  Usage  varies  with  regard  to  the 
amount  at  risk  per  acre,  some  limiting  risk  to  the 
cost  of  preparing  the  land  and  seeding,  others  in- 
suring to  full  value  of  the  crop. 

Ordinarily,  hail  storms  do  not  cover  very  large 
areas,  but  in  some  seasons  the  reverse  is  true.  Then 
the  conditions  become  somewhat  like  those  of  the  fire 
companies  which  have  conflagration  risks.  The  ab- 
normal losses  cripple  companies  which  carry  no  re- 
serve. In  1904  a storm  swept  over  six  counties  in 
Kansas,  an  area  of  over  5,000  square  miles.  Within 
this  territory  were  strips  devasted  by  hail  utterly 
destroying  the  crops  and  these  strips  covered  nearly 
the  entire  area.  A single  company  gives  its  losses 
as  in  excess  of  $160,000. 

The  state  reports  give  forty-three  Mutual  hail 
insurance  companies  in  Wisconsin,  Iowa,  the  Dako- 


OF  MUTUAL  INSURANCE 


377 


tas,  Nebraska,  Kansas,  Oklahoma  and  Colorado. 
Their  methods  of  business  vary  so  much  that  an  ac- 
curate classification  would  require  a separate  class 
for  each  company. 


ANOTHER  PLAN. 

There  are  some  among  these  which  assess  annu- 
ally after  the  losses  of  the  season  have  been  ascer- 
tained. They  claim  that  this  plan  is  successful  and 
satisfactory.  There  still  remains  the  vexed  question 
how  to  pay  losses  in  full  and  keep  down  the  assess- 
ments. An  examination  of  the  reports  shows  that 
as  long  as  assessments  are  sufficient  to  pay  losses  in 
full  every  thing  goes  smoothly  but  if  the  limit  is 
reached  and  pro  rating  is  resorted  to,  there  is  dis- 
satisfaction and  loss  of  business.  As  an  illustration, 
the  following  report  is  given,  round  numbers  being 
used  for  convenience.  In  1901  a Hail  Company  had 
$350,000  at  risk,  losses  $16,000,  all  paid  with  a small 
surplus.  Next  year  the  risks  were  $500,000,  losses 
and  expenses  $36,000,  of  which  only  $25,000  was 
paid.  In  1903,  the  next  year,  the  risks  fell  to  $370,- 
000.  The  losses  were  paid  in  full  and  the  next  year 
the  risks  increased  to  $934,000.  The  losses  were 
again  paid  in  full  and  a good  surplus  left. 

Similar  facts  are  shown  by  other  reports,  and 
the  same  state  of  affairs  occurs  among  the  fire  Mu- 
tuals. A heavy  assessment  or  a pro  rating  of  losses 
will  drive  away  business.  If  companies  were  al- 
lowed to  accumulate  a small  reserve  to  be  used  in 
abnormal  seasons,  this  difficulty  would  be  obviated. 


378 


A HAND  BOOK 


Such  a reserve  need  not  be  very  large.  Nearly  all 
companies  conducted  on  the  plan  above  described 
have  had  experience  in  bad  seasons.  They  have  a 
record  of  these  years  and  a reserve  sufficient  to  pay 
the  extra  losses  for,  say  two  years,  would  be  suffici- 
ent. In  the  case  of  the  company  above  quoted  $11,- 
000  would  have  enabled  the  company  to  have  paid 
its  obligations  in  full.  It  is  evident  that  if  the  good 
years  can  be  made  to  pay  for  the  bad  ones  the  burden 
of  assessments  would  not  be  heavy  in  any  year. 

FROM  MINNESOTA. 

The  following  letter  from  a Minnesota  hail  com- 
pany director  will  be  interesting  as  it  is  a statement 
of  actual  experience  along  the  lines  under  discus- 
sion. He  says: 

“We  organized  our  company  with  the  idea  of 
meeting  our  losses  on  the  assessment  plan  the 
same  as  in  the  fire  companies,  but  in  1902  we  met 
with  losses  amounting  to  over  $140,000  and  could 
pay  only  70  per  cent  of  the  losses  and  this  caused  us 
the  loss  of  many  members,  and  again  in  1903  we  met 
with  another  disaster  and  paid  only  35  per  cent.  The 
state  law  was  such  that  we  could  pro  rate  and  make 
full  settlement,  which  we  did  and  then  reorganized  on 
the  note  plan.  Last  year  we  wrote  at  3 per  cent  or 
15  cents  per  acre  and  limited  the  risks  to  160  acres 
on  a section  and  3,200  acres  in  a township  and  for- 
tune favored  us  so  that  we  have  a start  on  which  we 
believe  to  be  a safe  plan.  Had  we  done  this  when 
the  company  was  organized  we  would  have  been  able 


OF  MUTUAL  INSURANCE 


379 


to  carry  liail  insurance  in  this  state  for  an  average 
cost  of  3 per  cent  and  yet  have  a small  surplus  in  the 
treasury.  ’ ’ 

This  company  is  exceedingly  cautious  about 
bunching  risks.  It  will  not  take  more  than  one-fourth 
of  the  risk  on  any  one  square  mile,  nor  more  than 
one-sixth  in  any  one  township.  This  reduces  the 
danger  of  loss  from  sweeping  storms. 

Another  letter  from  an  experienced  hail  man 
says : 

“We  began  business  in  1899  and  the  first  years 
we  were  issuing  policies  on  the  five  year  term  with 
the  limited  liability  and  then  only  calling  for  such 
an  amount  at  the  end  of  the  year  as  was  necessary 
to  pay  the  losses  that  year.  But  for  two  years  out 
of  the  five  the  losses  exceeded  the  limit  of  liability 
and  we  were  compelled  to  pro  rate  the  losses.  At 
our  meeting  in  J anuary,  1904,  we  readjusted  the  rate 
according  to  the  hazard  in  the  different  parts  of  the 
state  and  we  are  now  collecting  a fiat  rate  payable 
on  June  15th  or  September  15.  If  the  premium  is 
paid  June  15,  it  is  one-half  of  one  per  cent  less  than 
if  not  paid  until  September  15,  and  we  are  now  issu- 
ing the  perpetual  policy.  We  find  after  a year’s 
experience  under  this  new  plan  that  we  are  much  bet- 
ter pleased  with  it.  We  have  had  a smaller  per  cent 
of  cancellations  than  ever  before  and  a better  per- 
centage of  collections.  It  is  a little  harder  to  write 
business  but  when  they  once  understand  what  they 
are  to  pay  they  are  much  better  satisfied  than  under 
the  assessment  plan.  Under  this  plan  we  were  able 


880 


A HAND  BOOK 


to  pay  our  losses  sixty  days  before  they  were  due 
and  at  the  end  of  the  year  we  had  over  $6,000  in  cash 
reserve  and  over  $5,000  in  premiums  collectable. 

4 ‘We  try  to  educate  our  members  thoroughly  to 
understand  just  what  their  insurance  is  and  we  en- 
close you  a copy  of  a personal  letter  we  sent  to  all 
of  our  members.  ” 

It  should  be  noticed  that  the  perpetual  policies 
of  the  eastern  and  the  western  companies  are  not  the 
same.  In  the  eastern  companies  there  is  a large  de- 
posit. The  western  perpetual  policy  is  one  which  is 
in  force  as  long  as  the  assessments  are  kept  up. 

In  the  personal  letter  above  alluded  to  the  state- 
ment is  made  that  the  payments  for  hail  have  aver- 
aged $30  on  the  $1,000  at  risk  since  the  company  has 
been  in  existence.  This  is  below  the  average. 

FROM  IOWA. 

This  letter  is  from  Iowa. 

“I  think  that  the  farther  northwest,  the  more 
hail  we  get,  but  as  to  any  one  county  being  extra  haz- 
ardous I do  not  think  that  it  is.  The  more  that  you 
can  get  on  a quarter  section  the  better  for  the  com- 
pany, for  you  have  more  to  assess  on.  Take  all  you 
can  get  on  a section,  as  one  section  is  no  more  liable 
to  be  hit  than  another. 

“Grain  blown  down  is  not  broken  down,  and 
grain  hit  by  hail  is  broken  about  three  to  six  inches 
from  the  head. 


OF  MUTUAL  INSURANCE 


381 


“I  think  you  had  better  issue  policies  for  five 
years.  Premiums  could  be  paid  in  advance  where 
you  have  a limit  to  the  assessment  and  where  the  as- 
sured agrees  to  take  his  share  of  what  is  left  after 
the  officers  and  expenses  are  paid,  but  if  your  policies 
are  written  so  you  have  to  pay  in  full  then  you  will 
have  to  make  assessment  after  the  losses  occur.’ ’ 

Another,  a Minnesota  company,  the  Park 
Region,  has  had  the  following  experience. 

4 ‘In  reply  we  have  to  say  that  we  have  had  ten 
years’  experience  in  this  business  and  so  far  as  the 
Mutual  plan  upon  a credit  basis  is  concerned  we 
have  come  to  the  conclusion  that  it  is  a failure. 

“We  collect  $2  membership  fee  at  the  time  of 
taking  the  application,  and  limit  the  liability  of  the 
applicant  to  an  assessment  of  not  to  exceed  five  per 
cent  of  the  amount  of  his  policy  and  which  becomes 
due  October  1,  each  year.  Our  policies  are  written 
for  a term  of  from  one  to  five  years.  The  chief  ad- 
vantage of  the  five  year  business  is  found  in  the  re- 
duction of  the  expense  of  writing  the  business,  as  the 
cost  is  the  same  in  writing  one  year  business  as  it  is 
in  writing  five.  Of  course  there  is  a liberal  percent- 
age of  the  long  term  business  cancelled  Jong  before 
the  contract  expires,  either  at  the  request  of  the  as- 
sured or  through  his  failure  to  pay  his  assessments. 

“The  latter  we  find  to  be  the  chief  objection  to 
the  long  term  policy,  as  we  are  usually  unable  to  col- 
lect more  than  50  per  cent  of  the  premium  after  the 
first  year,  while  the  liability  existing  against  us  is 
always  100  per  cent  upon  such  policies  in  force. 


382 


A HAND  BOOK 


“We  have  stated  that  in  our  opinion,  the  credit 
system  of  insurance  is  a failure.  Our  reasons  for 
this  are  owing  to  the  inability  to  collect  assessments. 
They  are  among  the  hardest  of  collections.  To  ask 
a man  to  pay  an  insurance  premium  after  a hazard 
has  passed  is  a good  deal  like  asking  him  to  pay  for 
a dead  horse.  In  fact  it  is  worse.  Many  of  them 
imagine  that  because  they  have  had  no  hail  or  dam- 
age, that  they  therefore  have  had  no  benefit  and  they 
feel  under  less  obligations  to  pay  such  a debt  than 
almost  any  other. 

1 ‘ At  any  rate,  after  exercising  the  greatest  care 
of  which  we  have  been  able  in  the  selection  of  insur- 
ance, and  using  the  greatest  diligence  in  the  effort  to 
collect,  we  have  been  obliged  to  charge  off  as  worth- 
less, on  an  average,  of  not  less  than  25  per  cent  of 
our  premiums— sometimes  more  and  sometimes  less. 
To  this  loss  must  be  added  the  large  expense  inci- 
dental to  effecting  the  collection  we  do  make. 

‘ ‘ Our  rates  of  assessment  have  run  from  Sy2  to  5 
per  cent,  and  while  each  year  we  have  succeeded  in 
the  payment  of  our  losses  in  full,  yet  there  have 
been  some  seasons  in  which  we  have  been  obliged  to 
borrow  part  of  the  money  in  order  to  do  so,  and 
there  have  been  several  seasons  when  the  manage- 
ment (aside  from  the  secretary)  have  received  noth- 
ing for  their  services.  We  believe  that  a cash  prem- 
ium should  be  collected  at  the  time  of  writing  the 
insurance,  and  in  case  this  premium  produces  an 
amount  in  excess  of  the  needs  of  the  business,  this 
excess  is  rebated  back  to  the  policy  holder.  Such  a 


OF  MUTUAL  INSURANCE 


383 


plan  would  largely  reduce  the  expense  of  conducting 
the  business  and  at  the  same  time  obviate  a loss  of 
at  least  25  per  cent  of  the  premiums,  which  under  our 
present  plan  and  the  plan  of  all  Mutual  companies 
of  which  we  have  knowledge,  is  now  worthless.  In 
the  making  of  this  saving  the  rate  of  premium  and 
cost  of  insurance  to  the  insured  would  be  much  re- 
duced and  the  payment  of  losses  could  be  made  at  a 
much  earlier  date  and,  we  believe,  would  be  much 
more  satisfactory  all  around. 

“We  believe  there  should  be  different  rates  of 
premium  upon  different  classes  of  crops  and  in  dif- 
ferent localities.  There  are  some  localities  where 
hail  of  more  or  less  severity  seems  to  make  its  an- 
nual visit  and  cause  more  or  less  destruction,  while 
in  the  same  region,  and  only  a short  distance  re- 
moved, other  localities  appear  to  be  almost  immune. 
Fruit,  both  small  and  large,  and  tobacco,  are  the 
most  hazardous  crops  to  insure.  The  rate  on  fruit 
should  be  twice  that  on  ordinary  crops.  Oats,  corn 
and  flax  are  among  the  least  hazardous.  We  at- 
tempt to  distribute  our  risks  over  as  large  a terri- 
tory as  possible  and  aim  to  insure  only  160  acres  in  a 
section.  In  practice  we  sometimes  exceed  this  a 
trifle,  it  depending  upon  thq  locality.” 

FROM  NEBRASKA. 

This  is  from  Nebraska. 

“ It  is  quite  true  that  different  crops  take  differ- 
ent rates.  Our  experience  has  proven  that  there  is 
not  much  difference  in  the  risk  on  oats,  corn  and 


384 


A HAND  BOOK 


wheat,  though  the  risk  on  oats  is  possibly  the  small- 
est risk.  But  we  do  not  think  there  is  enough  differ- 
ence in  these  crops  to  warrant  a difference  in  rates. 
It  is  possible  that  the  risk  on  corn  is  less  than  on 
wheat.  This  is  no  doubt  true,  especially  in  Kansas, 
as  your  storms  there  occur  as  a rule  earlier  in  the 
season  and  the  wheat  being  farther  along  the  risk 
would  no  doubt  be  greater  than  on  the  corn  crop. 
The  risk  on  barley,  spelts  and  rye  is  just  about 
twice  as  great  as  on  any  other  crop.  We  believe  that 
the  rates  should  be  twice  as  high.  We  have  never 
made  any  difference  here  because  there  is  so  little 
of  the  above  crops  raised  in  this  state. 

4 ‘ It  is  no  doubt  true  there  are  small  areas  more 
subject  to  hail  than  other  territories.  Still,  my  ex- 
perience in  writing  insurance  in  several  different 
states  has  shown  me  localities  where  farmers  have 
told  me  that  they  had  lived  in  the  same  neighbor- 
hood for  twenty  or  twenty-five  years,  without  losing 
any  crops  to  speak  of,  and  then  were  hailed  out  as 
many  as  three  years  in  succession.  We  find,  how- 
ever, that  there  are  localities  in  this  state  that  have 
proven  more  hazardous  than  others.  For  instance 
we  believe  that  the  territory  adjoining  rivers  is 
more  subject  to  hail  than  farther  away. 

“We  do  not  think  any  company  could  write  all 
the  insurance  that  is  offered.  We  believe  that  250 
to  300  acres  on  a section  is  all  the  insurance  that 
should  be  written;  and  do  not  think  that  too  much 
should  be  placed  on  one  acre  of  crop.  Our  plan  is  to 
insure  for  about  what  the  expense  of  farming  and 


DR.  JOSEPH  SAUNDERS,  ANDERSON,  IND. 

Dr.  Saunders  was  born  at  Troy,  Ohio,  June  1,  1849,  grew  up 
on  the  farm,  moved  to  Madison  county,  Indiana,  in  1871,  and 
graduated  at  the  Indiana  Medical  College,  Indianapolis,  in  1874. 
He  has  been  in  continuous  practice  since  that  date. 

For  the  last  twelve  years  he  has  succeeded  himself  as  presi- 
dent of  the  Madison  County  Farmers’  Mutual  Insurance  Com- 
pany, which  was  organized  in  1885,  and  is  in  a dourishing  condi- 
tion. 


ROBERT  A.  KIRKMAN,  ANDERSON,  INDIANA. 

Robert  A.  Kirkman  was  born  at  Greensborough,  N.  C.,  Nov. 
23,  1852.  He  emigrated  with  his  parents  to  Missouri  in  1858,  and 
with  them  in  1873  located  in  California.  For  many  years  he  was 
here  interested  in  the  business  of  fire  insurance,  having  acted  as 
agent  for  many  of  the  best  companies.  After  retiring  from  this 
business  he  purchased  a farm  in  Madison  county,  Indiana,  where 
he  now  resides.  Mr.  Kirkman  at  once  identified  himself  with  the 
“Farmers  Mutual  Insurance  Company”,  of  Madison  county,  and 
for  three  years  was  chosen  as  its  treasurer,  and  for  the  past  five 
years  has  been  its  secretary.  He  is  an  active  member  and 
worker  in  the  ranks  of  the  Mutual  Insurance  Companies 
Union  of  Indiana,  and  also  of  the  National  Association  of  Co-op- 
erative Mutual  Insurance  Companies  of  the  United  States. 


OF  MUTUAL  INSURANCE 


385 


rent  of  land  would  be  worth.  For  instance,  we  in- 
sure at  one  rate,  namely  $6  per  acre.  Of  course  the 
risk  would  be  all  right  to  insure  at  a lower  rate.  But 
our  experience  has  proven  that  a great  deal  of  dis- 
satisfaction has  been  caused  in  neighborhoods  where 
losses  occurred  and  they  were  insured  at  different 
rates  per  acre. 

“It  is  sometimes  a little  difficult  to  tell  whether 
the  grain  has  been  blown  over  by  the  wind  or 
knocked  down  by  the  hail.  In  most  cases  where  hail 
accompanies  wind  you  will  find  the  straws  shredded 
to  a certain  extent  or  broken  more  than  when  blown 
down  by  the  wind.  It  is  not  often  that  the  wind  alone 
blows  down  crops  so  badly  that  a good  portion  of 
them  do  not  rise  again,  at  least  in  some  part  of  the 
field.  But  when  blown  down  by  a twister  it  is  then 
quite  easy  to  tell  whether  it  is  done  by  the  wind  or 
the  hail.  Losses  of  this  kind  are  hardest  of  all  to 
adjust,  especially  where  the  farmers  try  to  take  ad- 
vantage of  the  company. 

“We  believe  that  it  is  best  to  issue  policies  for 
a longer  period  than  one  year  for  this  reason,  the 
hail  risk  being  so  much  greater  than  fire  risk,  busi- 
ness should  be  obtained  at  a smaller  expense  in  order 
to  have  as  much  of  the  premiums  to  pay  losses  with 
as  it  is  possible.  It  is  therefore  best  to  write  busi- 
ness for  a longer  period  in  order  to  save  commis- 
sions and  other  expenses.  Provision  can  be  made 
in  the  policy  for  change  or  transfer.  The  business 
could  no  doubt  be  conducted  more  satisfactorily  if 

24 


386 


A HAND  BOOK 


premiums  were  paid  at  the  beginning  than  at  the  end, 
before  the  losses  occur.  Then,  of  course,  so  much 
business  could  not  be  written  by  the  companies  be- 
cause it  is  the  time  of  the  year  when  a great  many 
farmers  do  not  have  ready  money  with  which  to  pay 
Insurance.  We  make  a slight  difference  in  rates  if 
premiums  are  paid  before  the  season  begins.  We 
charge  them  y2  of  1 per  cent  more  when  they  are 
paid  in  the  fall;  we  also  have  provision  in  our  by- 
laws that  no  member  shall  have  a claim  for  loss 
against  the  company  until  his  premium  is  paid.  If  it 
is  not  paid  before  the  loss  was  reported,  remittance 
must  accompany  his  notice  of  loss.  We  find  this  plan 
works  very  satisfactorily,  keeping  a great  many 
from  reporting  slight  losses  when  the  loss  is  nothing 
to  speak  of.” 

FROM  COMMISSIONER  DEARTH. 

Hon.  Elmer  H.  Dearth,  insurance  commissioner 
of  Minnesota,  says  in  his  report  issued  February  24, 
1904: 

‘ ‘ Those  companies  authorized  to  transact  the 
business  of  hail  and  cyclone  insurance  upon  the  Mu- 
tual plan  in  the  state  of  Minnesota  have,  in  common 
with  the  preceeding  two  years,  had  a sad  experience 
during  1903— their  losses  being  very  excessive. 
While  a majority  of  said  companies  paid  their  losses 
in  full  as  adjusted,  still  there  were  three  or  four  that 
were  not  so  fortunate,  on  account  of  the  failure  on 
the  part  of  a large  percentage  of  the  policy  holders 
to  promptly  pay  their  assessments.  One  company 
could  not  even  have  paid  50  per  cent  of  the  losses  as 


OF  MUTUAL  INSURANCE 


387 


adjusted,  had  the  entire  assessments  been  collected 
in  full.  The  adjusted  losses  of  this  particular  com- 
pany exceeded  $100,000,  while  the  proceeds  of  its  as- 
sessment, which  was  levied  for  the  full  limit  permit- 
ted under  the  statute,  if  fully  collected,  would  not 
have  exceeded  $53,000.  This  unusual  experience  is 
evidently  due  to  the  fact  that  its  risks  were  not  prop- 
erly scattered  or  distributed,  the  losses  amounting 
in  one  county  alone  to  practically  $45,000. 

“One  other  company— The  German  American 
Mutual  Hail  of  Wadena— was  unable  to  pay  any  per 
centage  whatever,  consequently,  proceedings  were 
duly  instituted  for  the  appointment  of  a receiver  to 
wind  up  its  business  and  financial  affairs. 

“As  regards  the  matter  of  expenses  during  the 
past  year,  none  of  the  companies  appear  to  be  sub- 
ject to  criticism;  in  other  words,  there  has  been  no 
evidence  of  extravagance  in  this  direction,  practical- 
ly all  of  the  companies  having  kept  within  their  one 
per  cent  limit,  as  provided  under  the  statute.  Practi- 
cally all  losses  as  sustained  by  the  companies  on  ac- 
count of  cyclones  and  windstorms  were  paid  in  full, 
as  adjusted. 

“It  is  clearly  evident,  in  view  of  the  failure  on 
the  part  of  a large  percentage  of  the  members  to  pay 
their  assessments,  that  the  only  practical  method  to 
be  pursued  in  conducting  this  class  of  business  is  to 
require  the  payment  of  a full  premium  in  cash  or 
secure  bankable  notes  upon  delivery  of  the  policies ; 
in  other  words,  no  company  should  assume  a dollar 
of  liability,  on  account  of  losses  through  hail, 


388 


A HAND  BOOK 


cyclones,  or  any  other  contingency,  until  the  cash 
funds  with  which  to  pay  the  same  have  been  actually 
collected  from  the  member  or  policy  holder.  The 
system  which  has  been  universally  followed  in  the 
past,  namely : not  requiring  the  members  to  pay  even 
a single  dollar  until  after  all  liability  for  losses  has 
accrued,  including  management  expenses,  is  respon- 
sible for  practically  all  the  financial  ills  and  troubles 
of  these  companies.  No  enterprise,  regardless  of  its 
character,  could  be  successful  if  conducted  on  such 
an  unbusinesslike  basis.  Experience  proves  that  a 
very  large  percentage  of  the  membership,  or  policy 
holders,  in  event  of  not  sustaining  any  loss,  refuse  to 
pay  their  assessments  when  levied  at  the  close  of  the 
year,  consequently,  if  the  losses  have  been  excessive, 
in  the  absence  of  a substantial  reserve  fund,  the  com- 
panies are  unable  to  promptly  liquidate  their  liabili- 
ties, the  alternative  being  settlement  upon  a pro  rata 
basis,  and  then,  in  many  cases,  only  for  a small  per- 
centage of  the  total  liabilities  accrued.  When  the 
claims  for  losses  become  due,  instead  of  having  the 
funds  in  hand  with  which  to  pay  the  same,  the  same 
are  in  the  pockets  of  hundreds  or  thousands  of  policy 
holders,  scattered  all  over  the  country,  many  of 
whom  refuse  to  let  go  of  it,  other  than  at  the  end  of  a 
law  suit.  Insurance  companies  certainly  cannot  pay 
losses,  or  other  liabilities,  until  they  have  received 
the  money  from  their  policy  holders,  and  the  time  to 
get  it  is  upon  delivery  of  the  policy,  or  at  time  of 
securing  application. 


OF  MUTUAL  INSURANCE 


389 


THE  MINNESOTA  LAWS. 

The  Minnesota  statutes  provide  that: 

4 4 All  companies  organized  under  the  provisions 
of  this  act  shall  charge  and  collect  on  their  policies 
at  the  time  of  delivery  thereof  a full  mutual  premium 
in  cash,  or  notes  absolutely  payable,  at  a rate  which 
shall  not  be  less,  in  the  hail  department,  than  two  and 
one  half  per  cent  per  annum  of  the  face  amount  of 
the  risk. 

‘ 4 Each  policy  holder,  in  addition  to  the  premium 
paid  or  contracted  to  be  paid,  shall  be  liable  to  an  as- 
sessment, to  pay  his  proportional  part  of  all  losses 
and  expenses  sustained  and  incurred  while  a member 
of  such  company,  not  exceeding,  however,  in  addition 
to  the  premium  named  in  his  policy  and  contract,  a 
sum  equal  to  such  premium,  provided  such  assess- 
ment, in  addition  to  the  premium  heretofore  paid  or 
contracted  to  be  paid,  shall  not  exceed,  in  any  one 
year,  the  sum  of  five  per  cent ; provided,  he  is  notified 
of  such  assessment  within  ninety  (90)  days  after  the 
expiration  of  his  policy  and  if  his  policy  is  for  not 
more  than  one  (1)  year,  within  ninety  (90)  days 
after  the  expiration  of  his  annual  insurance  there- 
under. The  mailing  of  such  notice  to  the  last  known 
address  of  the  member  shall  be  deemed  sufficient 
notice  of  such  assessment. 

4 ‘ The  total  amount  of  liability  to  which  a mem- 
ber is  liable  shall  be  plainly,  legibly  and  correctly 
stated  both  in  the  application,  policy  and  note,  if  a 
note  be  given.” 


390 


A HAND  BOOK 


The  expenses  of  any  liail  company  must  not 
exceed  one  per  cent  on  the  total  amount  at  risk. 

The  following  address  was  delivered  by  John  F. 
Zimmer,  secretary  of  the  United  Mutual  Hail  Associ- 
ation at  the  state  meeting  of  the  Nebraska  Mutuals. 
It  covers  the  ground  very  thoroughly. 

‘ ‘ Mutual  hail  insurance  undertakes  to  do  practi- 
cally the  same  thing  that  any  other  form  of  Mutual 
insurance  does,  that  is,  to  give  to  its  members  insur- 
ance at  actual  cost.  And  while  it  should  be  the  fixed 
determination  of  all  hail  insurance  organizations  al- 
ways to  strive  by  legitimate  means  to  make  the  cur- 
rent cost  as  little  as  possible,  they  should,  however, 
never  lose  sight  of  the  fact  that  insurance  of  any 
kind  which  is  not  secure  is  not  worth  paying  for. 
But  they  should  be  certain  to  make  it  cost  enough  to 
keep  it  permanently  secure  against  all  unforseen  dis- 
asters and  pitfalls.  In  1897  the  legislature  of  Nebras- 
ka passed  a special  act  providing  for  the  organiza- 
tion of  Mutual  hail  insurance  companies.  This  law 
provides  that  hail  companies  may  write  a limited 
liability  policy,  provided,  that  if  losses  for  any  one 
year  should  exceed  the  limit  of  all  the  liabilities  of 
its  members,  as  provided  by  its  by-laws,  then  the 
sufferers  must  accept  their  pro  rata  share  of  all 
funds  available  in  full  satisfaction  of  their  loss. 

‘ ‘ During  the  course  of  time  several  hail  insurance 
companies  were  organized.  Some  were  organized 
with  good  intentions.  Others,  seeing  that  the  legis- 
lators had  forgotten  to  place  any  restriction  on  the 
officers  having  charge  of  the  funds,  were  organized 


OF  MUTUAL  INSURANCE 


391 


for  no  other  purpose  than  for  personal  gain.  This 
kept  up  each  year  until  1903,  when  the  legislature 
amended  the  laws,  providing  for  a restriction  on  the 
officers  in  the  form  of  a $50,000  guarantee  bond,  run- 
ning to  the  State  of  Nebraska.  This  law  has  had 
the  desired  effect  and  has  put  an  end  to  the  wild  cat 
hail  insurance  business  in  Nebraska. 

“But  let  us  go  back  to  the  by-laws  adopted  by 
all  the  companies  that  were  striving  to  do  a legiti- 
mate business.  The  universal  custom  of  farm  fire 
companies  to  collect  each  year  what  was  needed  for 
losses  for  that  year  caused  the  hail  companies  to 
adopt  similar  plans,  and  as  time  went  on  this  plan 
has  practically  proven  a failure,  and  some  of  our 
companies  who  were  striving  to  do  a legitimate  busi- 
ness have  given  up  the  struggle  and  quit  business, 
so  that  out  of  some  dozen  organizations  only  five 
were  in  operation  during  the  past  season.  The  reas- 
on of  the  failure  of  so  many  companies  was  due  to 
the  fact  that  about  every  other  year,  or  at  least  two 
years  out  of  five,  the  losses  would  exceed  the  limit 
of  their  collectable  premiums,  and  the  losers  for  the 
bad  years  would  have  to  accept  their  pro  rata  share 
of  the  funds  realized  for  their  losses. 

AN  INJUSTICE. 

“The  injustice  of  a limited  liability  and  then 
collecting  only  such  an  amount  as  was  necessary  to 
pay  the  losses,  in  years  when  the  losses  were  less 
than  the  limit,  can  readily  be  seen  from  the  fact  that 
those  who  lost  their  crops  during  the  years  that  it 


392 


A HAND  BOOK 


did  not  require  the  full  amount  were  fortunate 
enough  to  get  their  losses  paid  in  full,  while  those 
who  lost  during  the  years  that  the  losses  exceeded 
the  limit  were  compelled  to  accept  their  pro  rata 
share  of  the  funds  realized.  Though  they  all  paid 
alike  for  a five-year  period,  they  were  not  all  treated 
alike  in  the  payment  of  losses.  If,  however,  they  had 
all  paid  the  limit  for  the  full  five  years  and  what  was 
not  needed  in  the  years  when  the  losses  were  less 
than  the  premium  had  been  held  as  a surplus  to  meet 
the  unforseen  disaster  when  the  losses  exceeded  the 
premium  collectable  for  that  year,  they  could  have 
had  surplus  enough  on  hand  to  pay  all  losses  each 
year,  and  in  that  way  treat  all  members  alike,  and  all 
receive  100  per  cent  on  the  dollar  for  losses. 

AN  EXPERIENCE. 

“The  United  Mutual  Hail  Insurance  Associa- 
tion, of  Lincoln,  has  during  its  six  years  of  existence 
carried  $7,194,000  of  risks,  upon  which  it  has  paid 
$214,994.70,  an  average  of  3 percent  on  every  dollar 
of  risks  carried,  or  $30  for  every  $1,000  of  insurance 
carried.  This  association  one  year  ago  adopted  the 
level  premium  basis  and  during  the  past  season  has 
been  able  to  pay  all  losses  in  full,  and  set  aside  a 
surplus  of  over  $6,000  cash,  besides  having  upwards 
of  $5,000  in  collectable  premiums,  to  meet  future 
losses,  providing  the  losses  should  exceed  the  total 
amount  that  could  be  collected  in  any  year.  This 
puts  the  association  on  what  we  believe  to  he  a reas- 
onably secure  basis. 


OF  MUTUAL  INSURANCE 


393 


MEAGER  STATISTICS. 

i ‘ State  reports  give  very  little  help  in  the  way 
of  statistics.  Iowa  reports  the  average  cost  of  hail 
insurance  as  $31.30  per  $1,000.  This  figure  is  ob- 
tained by  adding  up  the  average  of  the  Iowa  com- 
panies and  dividing  by  thirteen,  the  number  of  the 
companies.  This  is  the  method  generally  employed. 
But  Iowa  had  $7,655,103  at  risk  in  Mutual  companies 
and  the  total  losses  were  $327,265.33.  And  this  gives 
an  average  cost  of  $42.75  per  $1,000.  The  highest 
cost  per  $1,000  given  in  the  report  is  $59.47. 

“Wisconsin  reports  but  one  company  doing  an 
exclusive  hail  business.  Its  average  cost  was  $37.63 
per  $1,000.  But  this  did  not  pay  the  losses  in  full 
and  is,  therefore,  too  low. 

“Nebraska  reports  give  an  average  cost  of 
$46.06  per  $1,000.  Special  reports  give  from  $30  to 
$50  per  $1,000. 

4 ‘ Minnesota,  in  1903,  had  $8,364,942  at  risk.  The 
losses  were  $278,090.64.  This  is  $33.35  on  the  $1,000. 
The  total  assessments  levied  were  for  both  hail  and 
cyclone  insurance  $448,386.42 ; amount  collected 
$283,951.27.  The  expenses  for  the  hail  insurance 
cannot  be  ascertained  as  they  are  not  separated  from 
the  cyclone  business  except  in  the  case  of  a few  com- 
panies which  did  a hail  business  only.  They  average 
nearly  one  per  cent  or  $10  per  $1,000,  which  added 
to  the  $33.35  would  have  made  the  cost  approximate- 
ly $44  per  $1,000  had  the  losses  been  paid. 

“It  is  evident  that  hail  insurance  is  not  yet  on 
a scientific  basis.  Statistics  are  meager  and  unsatis- 


394 


A HAND  BOOK 


factory.  But  some  facts  seem  to  be  established.  It 
may  be  stated  that  the  hail  risk  will  average  over  ten 
times  as  great  as  the  ordinary  fire  risks.  Different 
localities  as  well  as  different  crops  should  take  dif- 
ferent rates.  The  bunching  of  risks,  or  failing  prop- 
erly to  scatter  them,  is  more  dangerous  to  hail  com- 
panies than  is  the  conflagration  risk  to  fire  com- 
panies. Hence  the  necessity  of  larger  territories  in 
which  to  operate. 

‘ ‘ There  has  been  some  progress  toward  weeding 
out  irresponsible  companies.  Occasionally  com- 
panies are  organized  entirely  in  the  interest  of  the 
officers.  They  make  the  expenses  what  they  please 
and  they  are  by  no  means  small.  Minnesota  limits 
the  total  expenses  to  one  per  cent  of  the  total  risks. 
Nebraska  requires  a bond  of  $50,000  to  the  state.  In 
the  one  case  there  is  no  chance  for  the  grafters  to 
steal,  in  the  other  they  cannot  give  the  bond.  But 
in  most  states  they  can  organize  companies,  pay 
themselves  in  full  and  pro  rate  the  losses.  This  state 
of  affairs  needs  remedying.  In  Kansas  a law  has 
been  passed  limiting  the  expenses  of  running  the 
company  to  fifty  per  cent  of  the  income.  This  is  too 
large.  The  Minnesota  one  per  cent  of  the  risk  is 
much  better. 

“Local  conditions  must  govern  in  many  re- 
spects, such  as  rates,  time  and  manner  of  levying 
assessments,  policies,  etc.,  whether  or  not  notes  shall 
be  used,  etc.  But  there  appears  to  be  a steady  drift 
towards  long  terms,  greater  cash  payments  and  reas- 
onable reserves. 


OF  MUTUAL  INSURANCE 


395 


“Of  all  the  hail  companies  which  have  been 
started  in  the  United  States  only  about  forty-three 
are  reported  as  in  business  to-day.  Some  retired  of 
their  own  accord,  some  were  closed  up  by  the  state 
authorities.  Of  the  total  number  there  are  but  few 
which  have  not  at  some  time  been  obliged  to  pro 
rate  a loss.  The  companies  now  in  existence  are 
working  toward  a better  basis.  They  will  probably 
all  survive. 

The  committee  adds  the  criticism  of  some  old 
officers  of  Hail  Mutuals.  One  says : 

HOW  TO  WRITE  BUSINESS. 

“I  believe  that  the  business  should  be  written  on 
a level  rate  and  the  rate  could  be  arrived  at  from 
past  experience  in  the  different  states  showing  the 
amount  that  has  been  necessary  to  collect  each  year 
to  pay  losses  in  full.  Of  course,  even  then  the  loss 
might  be  so  heavy  all  over  the  territory  that  the  com- 
pany could  not  then  pay  in  full,  but  it  is  more  than 
likely  with  a level  rate  and  creating  a reserve  fund 
that  after  the  fund  was  established  all  companies 
would  be  making  payment  in  full.  I do  not  believe 
that  the  reserve  fund  can  be  too  large  as  it  is  more 
than  likely  that  within  a five-year  period  at  least, 
losses  would  be  heavy  enough  so  it  would  require 
part  of  the  reserve  fund  to  make  payment  for  losses 
for  some  year  during  that  period.  Of  course,  if  the 
reserve  fund  should  get  larger  than  a full  year’s 
premium  on  all  the  business  in  force  by  any  com- 
pany, and  the  board  of  directors  felt  it  was  getting 


396 


A HAND  BOOK 


larger  than  necessary,  a credit  could  he  given  on  the 
next  year’s  insurance  on  all  policies  remaining  in 
force  with  the  company.  That  would  he  an  incentive 
for  policy  holders  to  retain  their  insurance  with  the 
company  and  would  of  course,  have  a tendency  to 
strengthen  the  company  in  that  way.  I believe  that 
business  should  be  written  for  as  long  a period  as 
possible  in  order  to  keep  the  expense  at  a minimum. 

4 ‘ Hail  companies  should  not  try  to  pay  the  same 
percentage  for  commission  to  their  agents  that  the 
fire  companies  pay  because  the  difference  in  the  risks 
is  so  much  greater. 

“By  writing  the  business  on  a five-year  period 
or  a continuous  policy,  all  expense  of  getting  busi- 
ness can  be  saved  after  the  first  year’s  insurance  is 
written.  I find  that  the  greatest  reason  why  policy 
holders  have  been  cancelling  their  insurance  after 
the  first  year  has  been  on  account  of  the  assessment 
plan,  for  the  reason  that  agents  in  soliciting  the  in- 
surance naturally  tell  the  prospective  applicant  that 
the  assessment  will  be  very  low  and  that  it  will  not 
cost  him  very  much  to  carry  the  insurance.  When 
assessment  is  made  at  the  end  of  the  season,  after  the 
applicant  has  not  had  a loss  and  he  finds  that  the 
assessment  is  much  greater  than  the  agent  led  him  to 
believe  it  would  be,  the  applicant  gets  sore.  For  this 
reason  a great  many  of  them  who  are  able  to  pay  and 
would  pay  if  the  amount  asked  for  was  what  they 
expected  it  to  be,  refuse  to  pay  and  then  if  collection 
is  enforced  they  have  their  policies  cancelled.  A 
good  way  to  avoid  this  dissatisfaction  and  loss  in 


OF  MUTUAL  INSURANCE 


397 


membership  is  to  have  the  time  of  payment  set  at 
that  time  of  the  year  when  losses  are  most  likely  to 
occur  and  they  feel  the  need  of  insurance,  and  have 
the  rate  a trifle  lower  than  the  rate  would  be  if  pay- 
ment were  made  in  the  fall.  Have  the  policy  show 
exactly  what  they  are  to  pay  either  at  that  time  or 
for  the  fall  payment.  I find  that  on  this  plan  our 
company  has  a very  small  per  centage  of  cancella- 
tions and  a much  smaller  per  centage  of  loss  in  col- 
lections than  formerly  under  the  assessment  plan. 

VALUATION  OF  CROPS. 

1 ‘ In  the  fourth  paragraph  we  note  what  you  say 
about  the  valuation  of  crop  insured  at  the  time  of 
adjustment.  I believe  that  market  prices  of  pro- 
ducts should  not  be  considered  at  any  time.  The  in- 
surance should  be  written  at  a certain  rate  per  acre 
and  as  the  insured  pays  on  that  rate,  adjustment 
should  be  made  on  that  basis.  Of  course,  provision 
should  be  made  in  the  by-laws  that  not  more  than 
the  actual  amount  of  loss  sustained  should  be  paid 
at  any  time  so  in  case  of  a poor  crop  being  hailed 
out,  the  insured  would  not  get  more  than  the  value 
of  the  crop.,, 


ANOTHER  OPINION. 

Another  of  wide  experience  says : 

‘ ‘ In  consideration  of  plans  and  methods  of  writ- 
ing hail  insurance,  there  is  no  general  rule  that  ap- 
plies to  fire  and  wind  storms  that  is  applicable  to 
hail  insurance.  There  is  no  similarity  of  conditions 


898 


A HAND  BOOK 


as  regards  hazards  or  liability.  While  there  is  no 
moral  hazard  in  writing  hail  insurance,  yet  there  is 
a moral  hazard  in  the  adjustment  of  losses,  or  in 
the  determining  of  the  valuation  of  said  crops,  and 
I might  add  that  there  is  a physical  hazard  with  a 
purely  assessment  company  where  assessments  are 
to  he  made  after  the  loss  has  occurred. 

“The  moral  hazard  as  applied  to  buildings  in 
fire  insurance  consists  in  part  in  the  condition  of  the 
building  and  the  overrating  of  the  value  thereof, 
while  the  moral  hazard  in  the  adjustment  of  hail 
losses  consists  in  the  over-estimating  of  the  average 
value  of  the  crops  and  as  to  conditions  as  to  how 
the  farming  has  been  done,  etc.  This  will  be  readily 
understood  by  those  who  have  been  adjusters  in  hail 
companies. 

‘ ‘ The  physical  hazard  might  be  determined  to  be 
the  delinquent  assessments  which  are  always  greater 
when  the  assessment  is  high,  and  this  also  is  regulat- 
ed by  other  conditions  such  as  sale  of  farms  and  re- 
moving from  one  farm  to  another  or  from  the  state 
in  which  the  assured  has  lived. 

“There  is  another  serious  condition  following 
this  same  class  of  insurance,  altogether  unavoidable 
but  at  the  same  time  either  increasing  or  decreasing 
the  liability  of  the  company.  I refer  to  the  valuation 
of  the  crops  insured  at  the  time  of  adjustment  of 
losses,  which  varies  according  to  the  markets  and  the 
prices  of  such  products.  Not  so  with  buildings, 
there  can  be  no  increase  in  valuation  from  the  face 
of  the  policy,  but  often  a decrease,  which  lessens 


OF  MUTUAL  INSURANCE 


399 


instead  of  increases  the  liability  of  the  company  in 
case  of  loss. 

“Our  experience  so  far  leads  us  to  the  conclus- 
ion that  this  class  of  insurance  is  the  most  hazardous 
and  intricate  in  its  management,  and,  consequently, 
some  methods  should  he  adopted  to  eliminate  at  least 
the  large  delinquency  attending  the  management  of 
the  business  under  the  almost  universal  system  as 
adopted  and  used  by  a majority  of  our  hail  com- 
panies. 

“We  further  conclude  that  the  popularity  of 
hail  insurance,  notwithstanding  the  seeming  neces- 
sity for  such  protection,  will  have  to  demonstrate  by 
plans  and  methods  which  have  not  yet  been  intro- 
duced in  a general  way. 

AN  UNFAIR  METHOD. 

‘ 4 The  prevailing  idea  now  seems  to  be  a limited 
assessment.  This  is  unfair,  and  in  many  respects 
altogether  unsatisfactory,  especially  to  those  having 
losses  in  case  of  excessive  storms,  and  with  an  un- 
limited assessment  with  severe  storms  making  a 
higher  assessment.  This  is  also  unsatisfactory  to 
those  having  no  losses,  so  there  is  at  the  present  time, 
as  we  see  it,  no  absolute  relief  from  these  contin- 
gencies over  which  we  can  have  no  control  and  upon 
which  there  has  not  been  a general  understanding. 
And  as  before  stated,  we  believe  in  order  to  bring 
about  the  correct  conclusions  of  the  most  satisfactory 
character,  that  an  average  basis  rate  payable  in  ad- 
vance is  the  only  correct  theory  upon  which  this 
knotty  problem  may  or  will  be  solved.’ ’ 


CHAPTER  XX. 


WINDSTORMS,  CYCLONES,  ELEC- 
TRICITY. 

Wind  or  air  in  motion  takes  different  names,  ac- 
cording to  the  speed  with  which  it  moves.  The  hur- 
ricane and  the  gale  which  occur  on  the  sea-coast  and 
on  the  ocean  are  similar  to  the  cyclone  and  the  wind- 
storm of  the  west.  Both  are  strong  enough  to  dam- 
age property.  The  windstorm  acts  by  direct  pres- 
sure and  breaks  off  or  overturns  whatever  is  in  its 
way.  The  cyclone  moves  in  a circle  in  a direction 
opposite  to  the  hands  of  a clock.  It  is  a whirlwind, 
and  the  whole  storm  advances  eastwardly  sometimes 
at  a speed  as  great  as  thirty  miles  an  hour. 

The  cause  of  these  storms  is  said  to  be  the  heat- 
ing of  the  air  in  one  area  more  than  in  another.  The 
air  in  the  heated  area  rises,  cold  air  follows  in  to  take 
its  place,  that  is  wind.  Sometimes  a stratum  of  cold 
air  which  is  heavy,  is  forced  over  a stratum  of  light- 
er heated  air.  The  latter  forces  its  way  up  through 
the  colder  layer  and  then  there  is  a whirl  as  there  is 
when  water  runs  through  a hole  in  the  bottom  of  a 
tank. 

The  force  exhibited  in  some  of  these  storms  is 
terrific,  and  there  has  been  much  speculation  as  to 
its  origin.  When  the  difference  in  barometrical  pres- 
sure is  taken  into  account  there  will  be  no  need  of 

400— 


OF  MUTUAL  INSURANCE 


401 


calling  in  any  other  element.  If  there  is  a difference 
of  barometrical  height  of  one  half  inch  between  two 
areas  each  a hundred  miles  square,  the  total  force 
developed  will  be  many  millions  of  tons,  enough  to 
account  for  the  effects  of  any  windstorm.  The  force 
of  a cyclone  can  also  be  accounted  for  but  no  one 
understands  how  that  force  acts.  A cyclone  will 
destroy  a well  built  house  and  leave  a frail  structure 
unharmed,  it  will  demolish  the  walls  of  a house  but 
leave  undisturbed  a kitchen  table  with  a lamp  stand- 
ing on  it,  it  will  blow  over  strong  trees  but  leave  a 
pile  of  shingles  between  them.  Thus  far,  no  one  has 
offered  a satisfactory  theory  concerning  these  mat- 
ters. 

Electric  forces  usually  act  very  powerfully  dur- 
ing cyclones,  and  occasionally  when  a gale  is  blow- 
ing. As  electricity  of  the  same  kind  is  strongly  self 
repellant,  there  will  be  two  forces,  the  one  attacking 
objects  from  the  outside,  pushing  over  buildings, 
breaking  off  trees,  etc.,  the  other  a repellant  force 
from  the  inside,  tending  to  split  and  rend.  The  in- 
terplay of  these  two  forces  produces  results  which 
are  destructive  and  against  which  there  seems  to  be 
no  defense. 

The  damages  done  by  gales  or  heavy  winds  are 
usually  wide-spread  but  slight  in  each  case.  On  the 
contrary,  the  cyclone  follows  a narrow  path,  and  not 
unfrequently  utterly  destroys  whatever  it  strikes. 
As  one  man  who  had  lost  a house  and  barn  expressed 
it,  there  was  not  a board  left  which  he  could  identify. 

26 


402 


A HAND  BOOK 


In  all  such  cases  the  adjustment  is  simple,  the 
loss  is  total,  and  the  loser  is  always  innocent  so  far 
as  the  destruction  is  concerned. 

When  the  damages  are  caused  by  a strong  gale, 
they  are  generally  not  heavy.  Glass  is  broken,  chim- 
neys blown  off,  siding  torn  loose  and  perhaps  the 
building  is  pushed  off  from  the  foundation.  All  these 
damages  are  easily  repaired,  and  the  best  way  to 
settle  the  loss,  will  be  for  the  company  to  make  the 
repairs  itself. 

Old  shanties  and  dilapidated  buildings  should 
not  be  insured.  They  are  very  liable  to  loss,  and 
their  owners  are  not  easy  men  to  settle  with. 

What  is  electricity?  No  one  knows.  So  far  all 
the  answers  given  only  raise  other  questions,  and  no 
advance  is  made.  For  nearly  two  thousand  five  hun- 
dred years,  the  manifestations  of  this  mysterious 
agent  were  studied  with  a total  of  results  which  could 
be  recorded  in  less  than  ten  pages  of  this  Manual. 
Finally,  Benjamin  Franklin,  by  means  of  his  famous 
kite  experiment,  demonstrated  the  fact  that  the  elec- 
tricity of  the  clouds,  and  static  electricity  as  pro- 
duced by  the  frictional  machine  then  in  use  were 
identical.  Stimulated  by  that  discovery,  the  scient- 
ists began  the  study  of  the  phenomena  of  thunder 
storms  and  soon  arrived  at  a practical  knowledge  of 
great  value. 

Electricity  exists  as  positive  and  negative.  With- 
out discussing  the  theories  on  the  subject,  it  may  be 
said  that  when  these  two  forms  or  conditions  are  in 
equilibrium,  no  electrical  action  is  apparent,  but 


OF  MUTUAL  INSURANCE 


403 


when  either  predominates,  there  will  be  a tendency 
to  restore  the  lost  balance. 

It  is  well  known  that  electricity  will  be  conveyed 
by  some  substances  much  more  freely  than  by  others, 
and  also  that  it  always  takes  the  path  of  least  resist- 
ance. When  passing  over  a good  conductor  of  suf- 
ficient size,  the  current  travels  quietly,  but  if  the  con- 
ductor is  too  small  or  is  not  a good  one,  heat  is  gener- 
ated, and  if  the  conductor  is  a very  poor  one,  such  as 
air,  it  jumps  or  discharges,  and  its  path  is  marked 
by  a flash  of  light  usually  called  the  electric  spark. 
And  lightning  is  only  an  enormous  spark  from  cloud 
to  cloud,  or  between  the  earth  and  a cloud. 

Attraction  exists  between  positive  and  negative 
electricity,  but  each  is  self  repellant.  Gases  charged 
with  electricity  expand,  solid  bodies  are  sometimes 
torn  into  fragments. 

Induction  is  the  action  of  electric  fluids  upon 
each  other  in  adjacent  but  separated  bodies.  Objects 
electrified  alike  repel  each  other  and  the  electricity 
of  the  one  influences  the  electricity  of  the  other,  and 
with  objects  electrified  differently,  the  conditions  are 
reversed.  This  induction  takes  place  between  the 
electricity  of  the  earth  and  of  the  atmosphere,  the 
former  generally  being  negative  and  the  latter  posi- 
tive. 

HOW  THE  THUNDER  CLOUDS  ACT. 

On  a clear  warm  day,  with  an  atmosphere  con- 
taining a large  amount  of  water,  the  air  near  the 
ground  becomes  heated,  and  consequently  lighter 
than  that  immediately  above  it,  and,  as  a matter  of 


404 


A HAND  BOOK 


course,  it  rises,  carrying  with  it  the  positive  electric- 
ity, which  it  contains,  till  it  meets  and  mingles  with  a 
stratum  of  air  cool  enough  to  condense  the  moisture 
which  it  contains.  A cloud  now  forms,  the  cumulus 
or  thunder  head,  as  it  is  usually  called,  and  this 
cloud  is  separated  from  the  earth  and  is  positively 
electrified.  As  the  process  goes  on,  the  warm  air 
rising  and  giving  up  to  the  cloud  its  positive  elec- 
tricity, at  the  moment  of  condensation,  there  is  an 
accumulation  of  vapor  and  of  electrical  force.  The 
lower  portion  of  the  cloud  remains  positive,  owing  to 
the  action  of  the  earth,  while  the  upper  surface  tends 
to  become  negative.  Discharges  take  place  between 
the  two  and  finally  from  the  cloud  to  the  earth  and 
occasionally  from  the  earth  to  the  cloud. 

The  repelling  force  of  the  electricity  causes  the 
cloud  to  spread  out,  the  rain  falls  from  the  center 
carrying  a downward  rush  of  air  while  the  warm  air 
at  the  edges  of  the  storm  still  continues  to  rise  and 
supply  electricity  and  vapor.  Thus  the  cloud  drifts 
along  continually  renewing  itself,  and  also  discharg- 
ing its  accumulated  electricity  as  well  as  the  rain  up- 
on the  earth. 

The  course  of  the  lightning  is  visible  in  the  flash. 
It  zigzags  through  the  air  and  generally  strikes  the 
best  conductor  near  by.  In  case  there  is  a good  con- 
ductor beneath  the  surface  of  the  ground,  water, 
moist  earth,  metal  etc.,  the  lightning  will  be  apt  to 
strike  there.  If  a highly  electrified  cloud  reaches 
over  any  point,  any  object  on  this  point  will  become 
abnormally  negative  and  in  case  of  a discharge  from 


OF  MUTUAL  INSURANCE 


405 


the  other  end  of  the  cloud,  the  shock  from  the  re- 
storation of  the  equilibrium  will  he  strong  enough 
to  produce  fatal  results  upon  persons  or  animals 
standing  there. 


TO  AVOID  DANGER. 

To  avoid  danger  from  lightning  some  means 
must  be  found  to  conduct  the  discharge  away,  in  oth- 
er words,  to  provide  a conductor  which  is  better  than 
the  object  to  be  protected.  Such  conductors  are  usu- 
ally called  lightning  rods.  These  are  usually  made 
of  iron  or  copper,  the  former  is  the  cheaper,  but  cop- 
per is  by  far  the  better.  If  made  of  iron,  the  rod 
should  not  be  less  than  three-fourths  of  an  inch  in 
diameter  and  an  inch  would  be  better.  It  should  be 
welded  into  one  solid  piece  and  should  be  pointed  at 
the  top  and  kept  sharp.  Copper  is  much  better,  a 
half  inch  copper  rod  being  preferable  to  the  iron 
rod  described  above.  But  it  must  not  be  too  small, 
as  a heavy  discharge  might  melt  it  and  set  the  struc- 
ture on  fire  besides  leaving  the  building  unprotected. 
Platinum  points  are  best,  only  one  on  each  rod 
should  be  used.  In  putting  up  the  rods  they  should 
be  firmly  fastened  to  the  building,  and  connections 
should  be  made  with  tin  roofs,  valleys,  water  pipes 
or  other  masses  of  metal  about  the  building.  The 
rod  should,  if  possible,  be  near  the  chimney  which  is 
most  in  use.  The  lower  end  of  the  rod  should  run 
away  from  the  house  and  into  moist  earth.  Some- 
times it  may  terminate  in  a well  but  never  in  a cist- 
ern. This  is  a matter  which  should  be  carefully 


406 


A HAND  BOOK 


looked  after,  as  a rod  which  does  not  lead  to  a good 
conductor  below  the  surface  is  worse  than  none.  It 
may  be  necessary  to  dig  trenches  or  holes  to  be  filled 
up  with  some  conducting  material  in  which  to  bury 
the  lower  end  of  the  rod.  If  so  they  should  be  forty 
or  fifty  feet  from  the  building.  No  sharp  angles 
should  be  allowed.  Lightning  will  not  turn  short 
corners.  If  the  building  is  large,  several  rods  should 
be  used.  It  is  stated  that  a rod  will  protect  a circle 
whose  radius  is  twice  its  height,  but  in  case  of  many 
buildings,  especially  those  with  several  chimneys,  it 
will  be  safer  to  use  more  than  this  rule  requires. 

As  to  the  form  of  the  rod,  a round  one  is  as  good 
as  any.  Excellent  copper  rods  are  now  made  as  sin- 
gle rods  or  in  strands  like  a cable.  Properly  put  up, 
these  should  furnish  absolute  security. 

Much  attention  should  be  paid  to  the  point.  It 
should  be  examined  after  every  heavy  shower  and  re- 
placed if  damaged.  The  reason  for  this  is  that  elec- 
tricity will  run  to  or  from  a point  when  it  will  not  to 
a surface,  and  the  points  should  be  kept  in  good  or- 
der. 

When  a positive  cloud  passes  over  a strongly 
negatively  electrified  rod  the  fluid  passes  off  from 
the  rod  without  a flash  if  the  rod  is  large  enough  to 
take  it  all.  This  is  occasionally  accompanied  with  a 
hissing  sound  which  can  be  heard  at  a distance  of 
several  yards.  In  all  such  cases  the  spark  is  either 
prevented  or  greatly  reduced  in  force  and  no  damage 
results. 


OF  MUTUAL  INSURANCE 


407 


TELEGRAPH  AND  TELEPHONE  WIRES. 

Telephone  and  telegraph  wires  entering  a build- 
ing should  be  made  safe.  Lightning  arresters  can  be 
had  which  will  answer  every  purpose.  A ground 
wire  on  a post  on  each  side  of  the  house  is  advisable. 
It  should  be  sharp  at  the  top  and  project  a few  inches 
above  the  post  and  be  well  imbedded  in  the  ground 
at  the  bottom. 

Fence  wires  should  be  grounded  every  five  or  six 
rods.  Let  the  wire  project  an  inch  or  two  above  the 
top  of  the  post  and  be  twisted  around  each  of  the 
fence  wires  so  that  a good  contact  is  secured  and 
then  run  into  the  ground  three  or  four  feet  and  there 
will  be  little  damage  from  lightning. 

To  use  language  which  is  extremely  unscientific, 
but  which  conveys  the  desired  idea,  electricity,  as 
artificially  produced,  is  used  to  transmit  light,  heat, 
sound  and  power. 

In  doing  this,  electricity  is  conveyed  over  wires 
or  through  the  air.  With  wireless  telegraph  insur- 
ance men  are  not  yet  largely  concerned.  Telephones, 
telegraph  and  power  wires  are  very  common,  and 
there  are  several  dangers.  They  may  be  struck  by 
lightning,  one  wire  may  fall  across  another,  the  in- 
sulation may  wear  out,  or  some  one  of  many  other 
things  may  happen  and  a fire  ensue. 

INSULATION. 

Insulation  must  be  complete.  Out  of  door  wires 
running  from  one  pole  to  another  are  frequently 
bare.  Such  wires  may  break  loose,  one  may  fall 


408 


A HAND  BOOK 


across  another,  a pole  may  break  off  and  tangle  up 
a large  number  of  wires.  If  these  wires,  or  any  one 
of  them,  carry  powerful  currents,  there  will  be  dam- 
ages unless  such  accidents  have  been  carefully  guard- 
ed against.  Covered  or  insulated  wires  are  used  in 
buildings  and  in  the  streets  of  many  towns  and  cities. 
The  covering  of  these  wires  should  consist  of  two 
parts,  an  insulating  layer  next  the  wire  and  a cover- 
ing of  hard  material  which  will  endure  wear.  Such 
wires  should  be  put  up  so  that  they  will  not  come  in 
contact  with  anything  which  will  rub  against  them, 
for  example,  the  swaying  limbs  of  trees.  When  they 
run  into  buildings  they  should  be  carried  through 
the  walls  in  insulating  tubes  of  some  waterproof 
material.  Glass  or  porcelain  is  best,  rubber  is  not 
accepted  by  many  companies.  The  reason  for  these 
requirements  is  that  in  case  of  insulation  becoming 
broken  a new  circuit  is  formed  which  is  generally 
imperfect  and  at  the  point  where  the  imperfection 
exists  heat  is  developed.  Two  insulated  or  coated 
wires  cross  each  other,  they  touch  occasionally,  final- 
ly a small  hole  is  worn  in  the  covering  of  each,  they 
come  in  contact,  a blaze  ensues  at  once,  and  also  a 
fire,  if  there  is  anything  combustible  at  hand.  The 
most  common  cause  of  trouble  is  water  which  is  a 
good  conductor.  It  soaks  through  coverings,  destroy- 
ing the  insulation.  If  the  tubes  through  which  wires 
enter  a building  are  not  properly  put  in,  they  may 
become  filled  with  water.  They  should  slope  upward 
from  the  outside.  Wires  near  windows  should  be  so 
placed  that  moisture  condensing  cannot  reach  them. 


OF  MUTUAL  INSURANCE 


409 


When  speaking  tubes  are  used,  a thick  insulation 
should  be  placed  between  them  and  the  electric  wires. 
A wire  should  not  he  allowed  to  carry  more  electric- 
ity than  its  normal  load.  Provision  should  be  made 
for  the  discharge  of  any  accidental  overload. 

The  danger  from  contact  with  highly  charged 
wires  has  been  considered,  as  has  the  risk  from 
lightning.  There  is  another  source  of  danger.  When 
one  wire  carries  electricity  to  several  different  ma- 
chines, if  one  after  another  is  shut  off  without  a cor- 
responding reduction  of  the  force  generated,  the  ac- 
cumulation might  be  so  great  as  to  cause  a fire.  There 
are  automatic  contrivances  for  avoiding  all  these 
dangers  and  they  are  excellent  if  they  only  work. 
But  just  to  put  them  in  and  leave  them  will  not  do. 
They  must  be  inspected  occasionally  to  make  sure 
they  are  working. 

No  rules  can  be  given  which  will  last  forever. 
New  uses  for  electricity  are  discovered  almost  daily. 
But  if  care  is  exercised  in  putting  in  only  approved 
constructions  and  common  sense  is  used  in  inspecting 
them,  and  keeping  them  in  order,  the  risks  will  be 
very  small.  But  inexperienced  persons  should  have 
electrical  work  inspected  by  some  competent  person 
before  accepting  it. 


CHAPTER  XXL 

INSURANCE  FUNDS. 

All  insurance  companies  must  have  resources 
of  some  kind  with  which  to  pay  their  losses,  and  there 
are  sharp  discussions  regarding  the  character  and 
management  of  these  resources.  One  side  says  that 
the  true  method  is  to  collect  for  each  fire  policy  in 
advance  and  on  each  life  policy  annually  at  the  be- 
ginning of  the  policy  year.  But  the  safety  of  the  in- 
sured requires  that  these  payments  should  he  held 
by  the  company  till  they  are  earned.  Premiums  do 
not  become  the  property  of  the  company  the  day  they 
are  paid  in,  but  slowly  as  time  passes  by.  Under 
these  conditions  there  will  he  a large  fund  on  hand 
in  nearly  every  company.  What  is  to  be  done  with 
it!  To  let  it  lie  idle  would  be  both  dangerous  and 
wasteful.  It  must  be  invested,  but  in  what?  Stocks 
and  bonds  are  usually  selected.  Real  estate  mort- 
gages are  taken  by  some  companies.  Government 
bonds  are  safe  and  so  are  most  state  bonds,  but  the 
amounts  of  such  securities  available  are  only  a drop 
in  the  bucket  compared  with  the  sum  needed  and  the 
companies  invest  in  stocks  and  bonds.  The  concen- 
tration of  such  a mass  of  wealth  in  the  hands  of  a few 
men  united  by  the  ties  of  a common  interest,  is  dan- 
gerous. It  is  in  the  power  of  the  Life  Insurance 

410— 


OF  MUTUAL  INSURANCE 


411 


Companies  of  the  United  States  to  manipulate  the 
stock  market  at  their  pleasure. 

The  dangers  pictured  are  not  imaginary  they 
are  real  as  is  shown  by  the  recent  developments. 
There  is  another  possibility,  that  sometime  one  of 
these  great  companies  may  not  meet  its  obligations, 
may  fail.  The  result  would  be  a panic  which  few  of 
the  bonds  and  stocks  would  survive.  Not  that  they 
are  absolutely  worthless,  but  their  dividend  power 
would  be  gone  for  many  years,  and  the  unfortunate 
patrons  of  the  company  which  owned  them  would, 
in  case  of  death,  or  loss,  receive  but  a small  percent- 
age of  their  claim. 

THE  MUTUAL  SYSTEM  DIFFERENT. 

On  the  other  hand,  the  assessment  system  of  the 
Mutuals,  contemplates  no  such  accumulation  of 
money.  The  assessment  life  companies,  on  their 
feet  at  last,  carry  no  funds.  The  A.  0.  U.  W.  the 
largest  of  all,  paid  out  last  year  in  benefits  and  death 
losses  over  ten  millions  of  dollars  and  yet  it  carries 
scarcely  any  funds  on  hand.  Its  assessments  are 
promptly  paid  and  are  only  made  as  occasion  re- 
quires. Joint  stock  companies  paying  that  amount 
of  losses  have  any  where  from  fifty  to  a hundred 
millions  of  assets,  most  of  it  invested  in  stocks  and 
bonds.  The  fact  is  that  the  enormous  amounts  of 
money  to  be  invested  by  the  insurance  companies 
are  a constant  temptation  to  schemers.  And  where 
an  insurance  company  invests  a million  or  two  in  a 
trust  company  and  loans  it  as  much  more,  it  looks 
as  if  some  one  was  on  the  eve  of  yielding  to  that 
temptation. 


412 


A HAND  BOOK  • 


In  the  cash  Mutual  as  it  is  called,  the  premiums 
are  collected  in  money  and  a dividend  is  made,  re- 
turning from  time  to  time  to  the  policy  holder  the 
surplus  which  he  has  paid  above  the  cost  of  carrying 
his  risk.  In  both  fire  and  life  this  plan  cuts  down 
very  largely  the  great  accumulations  alluded  to.  But 
in  both  lines  it  is  necessary  to  carry  on  hand  the  un- 
earned premiums  and  a small  reserve. 

The  other  class  of  Mutuals,  the  assessment  or- 
ganizations, carry  no  large  accumulations.  In  the 
life  companies  they  carry  nothing  except  a few  dol- 
lars working  balance,  in  the  fire  line,  there  are  some 
policy  holders  who,  for  the  sake  of  convenience,  de- 
posit with  the  company  the  full  amount  of  the  prem- 
ium. Most  companies  assess  once  a year.  Of  course 
a portion  of  this  fund  must  be  on  hand  in  all  those 
which  assess  in  advance,  and  adding  to  this  a modest 
reserve  the  whole  sum  would  be  far  below  the  accu- 
mulations of  the  joint  stock  companies.  Then  there 
is  another  consideration,  all  the  Mutuals  look  to  a 
limit  of  their  reserve,  a time  when  it  shall  reach  a 
maximum,  while  the  other  companies  expect  to  go  on 
increasing  indefinitely. 

It  is  no  wonder  that  one  State  Superintendent 
has  proposed  that  all  life  insurance  companies  be 
compelled  to  transform  themselves  into  Mutuals. 

Were  the  Mutual  system  as  generally  adopted 
as  it  should  be,  more  than  two  billions  of  dollars 
would  be  returned  to  policy  holders  of  the  country. 
This  vast  sum  is  now  invested  in  stocks  and  bonds, 


OF  MUTUAL  INSURANCE 


413 


that  is,  it  is  practically  loaned  to  the  corporations 
and  between  these  and  the  joint  stock  insurance  com- 
panies there  is,  of  course,  the  closest  sympathy. 

MUTUAL  SAVINGS  TO  POLICY  HOLDERS  IMMENSE. 

The  savings  of  the  Mutual  fire  insurance  com- 
panies to  their  members  are  not  on  so  grand  a scale, 
yet  State  Superintendents  and  others  talk  about  mil- 
lions to-day  and  the  sum  is  ever  increasing. 

There  is  still  another  consideration.  The  re- 
serves of  the  Mutuals  belong  to  the  members  and  the 
interest  helps  to  pay  expenses,  while  accumulations 
of  the  joint  stock  companies  belong  to  the  stock  hold- 
ers and  the  interest  goes  to  swell  the  dividends. 

The  reserves  of  the  Mutuals,  though  small,  yet 
have  their  place.  They  are  generally  loaned  at  low 
interest  and  on  long  time,  on  good  farm  mortgages. 
They  add  to  the  sum  of  loanable  money,  and  thus 
have  a tendency  to  lower  interest  rates.  These  re- 
serves are  never  large  enough  to  be  considered  in 
legislation.  On  the  other  hand  the  great  army  of 
policy  holders  in  the  old  line  institutions  are  interest- 
ed in  stocks  and  bonds,  the  value  of  their  policies 
depending  on  them  to  a great  extent.  And  that  is 
one  of  the  reasons  why  it  is  so  difficult  to  regulate 
the  large  corporations.  There  are  too  many  men 
interested  in  having  things  as  they  are. 

A TRUSTWORTHY  AUTHORITY. 

In  an  interview  with  Paul  Morton  published  in 
the  Chicago  Record-Herald  November  1,  1905,  he  is 
quoted  as  follows : 


414 


A HAND  BOOK 


Asked  how  he  liked  the  insurance  business,  Mr. 
Morton  declared  that  it  was  fine,  because  it  included 
so  much  railroad  business. 

“I  am  still  in  the  railroad  business,’ ’ he  said, 
laughing.  “You  see  the  Equitable  has  $175,000,000 
worth  of  railroad  securities.  We  hold  $8,000,000 
worth  of  Santa  Fe  securities,  are  interested  heavily 
in  the  Northwestern,  own  securities  of  the  Union 
Pacific  and  of  several  others  of  the  big  railway  sys- 
tems. Handling  these  securities  keeps  my  hand  in 
the  railroad  business.  ’ 9 

This  is  quoted  not  to  reflect  on  Mr.  Morton,  but 
to  give  authority  for  our  figures. 


CHAPTER  XXII 

NEW  ENGLAND  FACTORY  MUTUALS. 

(For  the  data  from  which  this  chapter  is  written,  the  com- 
mittee are  indebted  to  the  Hon.  Edward  Atkinson,  president  of 
the  Boston  Manufacturers  Mutual  Fire  Insurance  Company.  He 
has  been  in  the  service  of  that  Company  since  1865.  His 
pamphlet,  “The  Prevention  of  Loss  by  Fire,”  and  the  report 
of  the  company  for  1904  are  not  exceeded  in  value  by  any  other 
insurance  document.  It  would  be  a good  investment  for  the 
Mutual  fire  insurance  companies  of  this  country  to  put  a copy 
of  that  pamphlet  into  the  hands  of  every  official  and  every 
policy  holder  in  the  United  States.) 

The  system  of  factory  Mutual  insurance  was  established 
by  Zachariah  Allen,  of  Providence,  Rhode  Island,  when  he  and 
his  associates  organized  the  Providence  Manufacturers  Mutual 
Fire  Insurance  Company.  This  system  is  unique.  It  is  the  only 
known  instance  of  coupling  the  prime  motive  of  prevention  of 
loss  by  fire  with  payment  of  indemnity  in  money  for  such  losses 
as  cannot  be  avoided.  This  is  ideal  mutualism,  not  only  to  share 
one  another’s  burdens  but  also  to  unite  all  efforts  to  make  both 
the  burden  and  the  contribution  as  light  as  possible.  While 
other  Mutuals  are  following  along  the  same  line,  they  are  still 
afar  off.  The  indemnity  feature  is  still  in  the  foreground,  while 
the  saving  of  fire  waste  is  merely  an  incidental. 

A GENERAL  RULE. 

/ 

In  this  pamphlet,  Mr.  Atkinson  develops  the  following  rule : 
“After  the  insurance  company  has  done  its  duty  by  careful 
selection  of  risks  and  thorough  inspection,  all  that  it  can  do  is 
to  pay  indemnity  for  loss  which,  if  large,  is  in  nine  cases  out  of 

—415 


416 


54  HAND  BOOK 


ten  due  either  to  the  lack  of  apparatus  for  preventing  such  loss, 
or  to  lack  of  care  and  order  in  the  conduct  of  the  work.  The 
only  persons  who  can  prevent  loss  by  fire  are  the  owners  ox- 
occupants  of  the  insured  premises.  Upon  them  rests  the  re- 
sponsibility for  heavy  loss,  if  any  occurs,  in  nearly  every  fire.” 

It  has  always  been  the  practice  of  the  Mutual  companies  to 
instruct  occupants  and  owners  upon  their  duties  to  their  own 
property  and  to  keep  them  up  to  the  mark  by  constant  super- 
vision and  by  refusing  contracts  of  indemnity  to  those  who 
neglect  their  own  duty.  To  demonstrate,  the  identity  of  interest 
between  the  underwriter  and  the  owner  was  not  always  an  easy 
task. 

The  Mutuals  were  successful  from  the  start.  They  fur- 
nished indemnity  during  the  first  decade,  1850-1859,  at  34.42 
cents  per  $100  of  risk.  During  the  next  decade,  1860-1869,  the 
cost  per  $100  was  reduced  to  30.92  cents;  fi-om  1870-1879  the 
cost  was  26  cents.  In  1878  Mr.  Atkinson  was  elected  president 
and  devoted  his  whole  time  to  the  perfection  of  the  plan  upon 
which  the  Mutuals  wei’e  organized. 

Before  1878  no  regular  meetings  of  the  directors  had  been 
held.  Inspections  had  been  made  by  the  presidents  or  secre- 
taries about  once  a year,  usually  a few  weeks  before  the  expira- 
tion of  the  policy.  Modern  safeguards  had  not  been  investi- 
gated. There  were  no  experience  tables,  no  classifications  of 
risks,  and  no  real  comprehension  of  the  relative  hazard  on  dif- 
ferent risks;  everything  depended  upon  the  extraordinary  mem- 
ories of  Messrs.  Manton  and  Whiting.  It  had  become  evident  to 
Mr.  Atkinson  and  other  directors  that  a very  complete  change 
must  be  made  in  the  conduct  of  the  whole  system,  and  that  new 
safeguards  must  be  found  in  order  to  meet  the  increasing  hazard 
of  lai-ger  floor  areas,  mills  of  many  stoi-ies  in  height,  higher 
speed,  new  dye  stuffs,  and  to  anticipate  the  new  hazard  of 
mineral  oil,  then  being  gradually  introduced  as  a lubricant,  of 
electricity,  etc.,  etc. 

In  1878,  the  president  began  the  elimination  of  poor  risks, 
and  in  the  ensuing  two  years  a large  amount  was  cancelled.  Its 


EDWARD  ATKINSON. 

Mr.  Atkinson  was  a noted  economist  who  always  wrote  and 
acted  from  a philanthropic  standpoint. 

He  was  a leader  among  the  Mutual  Insurance  men  of  New 
England,  and  his  advice  and  opinions  were  often  called  for  from 
other  sections. 

His  death  removes  a man  to  whom  the  whole  country  is 
greatly  indebted. 


J.  SOMERS  SMITH,  JR.,  PHILADELPHIA. 

Mr.  Smith  is  secretary  of  the  Philadelphia  Contributionship 
for  the  insurance  of  houses  from  loss  by  fire.  He  has  been  sec- 
retary and  treasurer  for  the  past  twelve  years,  was  a clerk 
in  the  office  for  seven  years  preceeding.  He  succeeded  his 
father  who  was  secretary  and  treasurer  for  thirty-five  years  or 
from  1859,  and  who  succeeded  his  father,  grandfather,  who 
served  seventeen  years  or  from  1842.  One  clerk  is  serving  his 
thirty-ninth  year.  Mr.  Thomas  E.  Moorhead,  assistant  secretary 
for  several  years,  was  with  this  company  fifty  years,  and  Caleb 
Carnalt  forty-two  years. 


OF  MUTUAL  INSURANCE 


417 


place  was  soon  supplied  by  safer  hazards.  Measures  were  taken 
to  establish  a quarterly  inspection. 

In  1880,  the  science  of  preventing  loss  by  fire  was  fairly 
entered  on.  Mr.  Atkinson  had  become  convinced  that  unless 
the  hazard  of  larger  and  larger  factories,  higher  speed,  etc. 
could  be  met,  the  Mutual  system  would  break  down.  He  in- 
sisted that  automatic  sprinklers  be  made  a condition.  It  took 
years  to  enforce  it.  As  an  illustration  of  the  pertinacity  with 
which  the  improvement  was  resisted,  Mr.  Atkinson  says  that  a 
“possibly  useful  and  somewhat  personal  suggestion  was  made 
to  myself  by  a member  who  had  become  a little  irritated  through 
my  persistent  nagging  for  sprinkler  protection.  He  remarked 
that  ‘when  I passed  on  to  some  other  life  I had  better  take  a 
sprinkler  with  me  for  my  own  protection. 1 11 

REDUCING  FIRE  WASTE. 

In  1879  a careful  compilation  was  begun  by  which  the  com- 
bined experience  of  all  the  companies  could  be  registered  from 
year  to  year.  This  afforded  much  valuable  information.  The 
whole  energy  of  the  companies  was  turned  in  the  direction  of 
reducing  fire  waste  and  with  such  success  that  the  cost  of  insur- 
ance per  $100  at  risk  during  the  decade  1880-1889  fell  to  22.62 
cents. 

The  work  continued,  new  method  of  protection  was  intro- 
duced, roof  hydrants  were  constructed,  new  buildings  carefully 
inspected  and  dangers  guarded  against.  As  all  mills  are  pro- 
vided with  power  which  can  be  used  in  case  of  fire,  close  proxi- 
mity, instead  of  increasing  the  risk,  really  diminished  it,  owing 
to  the  assistance  which  mills  could  render  each  other  by  furnish- 
ing a deluge  of  water  in  case  of  fire.  If  these  plans  were  adopt- 
ed in  other  lines  the  conflagration  hazard  in  large  cities  could 
be  well  nigh  eliminated. 

The  records  of  fires  had  been  tabulated  and  the  causes  were 
examined.  Among  the  first  disclosures  was  the  large  number  of 
fires  and  the  large  amount  of  losses  from  broken  lanterns.  This 
26 


418 


A HAND  BOOK 


led  to  an  examination  and  not  a single  safe  lantern  was  found 
in  mill  use.  A new  manufacturing  firm  was  called  on  and  a new, 
safe  and  cheap  lantern  invented,  but  it  took  five  years  to  per- 
fect it. 

Spontaneous  combustion  had  caused  serious  losses.  Mineral 
oils  were  substituted  for  animal  oils  or  mixed  with  them  and  the 
loss  from  this  cause  was  much  reduced. 

At  this  time  several  fires  occured  in  roofs  which  were  so 
constructed  that  there  was  a hollow  place  at  the  eaves.  At 
length  a partly  burned  roof  revealed  the  secret.  The  rats  had 
carried  oily  waste  to  the  vacant  space  to  build  their  nests  and 
spontaneous  combustion  had  ensued.  The  style  of  roof  was 
changed,  the  eaves  were  left  open  and  fires  from  that  cause 
ceased. 

Hot  bearings  made  trouble.  The  oils  were  examined  and 
found  unsatisfactory,  with  one  exception.  The  dangerous  oils 
were  condemned.  This  led  to  the  threat  of  suit  for  damages 
from  the  manufacturers  but  there  was  no  backing  down.  The 
manufacturers  changed  their  methods  of  distillation,  better  and 
cheaper  oils  were  made  and  fire  loss  from  that  source  was 
greatly  reduced,  as  well  as  the  expense  of  running  the  machin- 
ery. 

Varnished  surfaces,  fire  proof  paints  etc.  received  attention 
and  with  good  results. 


A GOOD  STORY. 

Sawdust,  greasy  rags,  etc.  were  condemned  as  extremely 
hazardous.  Mr.  Atkinson  tells  the  following  good  story  upon 
himself. 

“I  have  myself  been  subject  to  one  alarm  from  fire  in  a 
shed  attached  to  my  own  house.  The  watchman  on  the  street 
five  hundred  feet  away  smelled  smoke,  passed  over  two  or  three 
estates  of  my  neighbors  and  finally  traced  the  smoke  to  a barrel 
containing  rubbish  in  the  shed  of  my  own  house.  It  was  but  a 
short  distance  to  the  fire  alarm,  which  he  sounded,  bringing  the 
chemical  fire  engine.  I was  awakened  by  the  noise  of  the  firemen 


OF  MUTUAL  INSURANCE 


419 


putting  out  the  fire,  which  in  the  interval  had  suddenly  burst 
out  with  considerable  virulence  in  the  shed  in  which  my  tank 
of  kerosene  oil  was  kept.  The  origin  of  the  fire  was  traced  to 
a greasy  ham  bag  in  the  bottom  of  a barrel,  over  which  a lot' 
of  excelsior  and  other  rubbish  which  had  been  used  as  a packing 
in  the  barrel  had  been  thrown  back.  Great  care  had  been  taken 
by  myself  in  regard  to  the  ash  barrels  and  receptacle  for  rub- 
bish. All  in  the  cellar  were  of  metal,  but,  in  this  exceptional 
case,  the  barrel  from  which  goods  had  been  unpacked  had  been 
temporarily  put  in  the  shed,  with  this  greasy  ham  rag  at  the 
bottom.  Carrying  a policy  of  insurance  on  my  library  in  order 
to  make  me  a member  of  the  company  of  which  I am  president, 
I was  obliged  to  report  this  fire  in  the  monthly  report,  to  which 
I added  that  “this  member  had  been  warned  by  the  president 
that  if  he  permitted  combustible  material  to  be  put  away  in 
wooden  barrels,  his  policy  would  be  immediately  caneelled.,, 

And  so  the  work  went  on.  Every  fire  was  thoroughly  in- 
vestigated and  all  materials  examined.  Experts  were  employed 
in  all  lines  and  the  expense  to  the  insured  is  steadily  decreasing. 
The  cost  per  $100  at  risk  from  1890  to  1899  was  15.64  cents  and 
for  the  five  years  following  only  7.85  cents. 

The  companies  now  own  a laboratory  in  which  all  new  inven- 
tions are  tested  and  their  merits  reported.  The  great  value  of 
the  service  of  this  laboratory  in  preventing  large  conflagrations 
can  hardly  be  estimated.  That  danger  still  exists  in  many  cities 
and  when  a conflagration  does  come  there  is  danger  that  it  will 
bankrupt  companies  which  have  large  lines  in  such  cities.  The 
only  method  of  preventing  such  destructive  fires  is  to  proceed 
along  the  lines  already  followed  by  these  companies. 

The  pamphlet  utters  some  timely  warning  concerning  the 
condition  of  public  buildings.  School  houses,  hospitals,  theaters, 
etc.  are  often  veritable  fire  traps.  The  United  States  burns 
11.36  churches  per  week,  which  induces  Mr.  Atkinson  to  say  that 
by  combination  for  Mutual  insurance  the  church  members  might 
be  assured  against  cremation  in  this  world  if  not  in  the  next. 

These  companies  have  what  they  call  “Missionary  Litera- 
ture, ” consisting  of  plans  for  constructing  buildings,  lists  of 


420 


A HAND  BOOK 


approved  fire  apparatus,  etc.  This  embodies  the  result  of  care- 
ful and  long  continued  observation  as  well  as  of  actual  experi- 
ment and  test.  It  has  proved  of  great  service. 

It  is  hoped  that  this  brief  review  of  a most  valuable  pamph- 
let will  set  Mutual  insurance  men  to  thinking  and  to  renewed 
efforts  toward  reducing  the  fearful  fire  waste  of  the  country. 

ADDRESS  AT  ATLANTA. 

The  following  is  a paper  by  Mr.  Atkinson,  printed  in  the 
proceedings  of  the  Tenth  Annual  Convention  of  the  National 
Association  of  Manufacturers,  at  Atlanta,  Georgia,  in  May,  1905. 
It  shows  what  can  be  done  in  reducing  fire  waste,  and  if  so 
much  can  be  accomplished  in  the  factory  lines,  where  risks  have 
been  considered  excessive,  what  may  be  expected  in  other  lines 
if  proper  efforts  are  put  forth.  The  paper  follows: 

“I  have  been  honored  by  your  executive  committee  with 
the  request  that  I would  attend  your  convention  and  give  you 
an  address  on  methods  of  reducing  the  cost  of  fire  insurance. 
I regret  that  advancing  age  makes  it  indiscreet  for  me  to  under- 
take long  journeys  by  rail,  and  I am  therefore  obliged  to  com- 
municate with  you  through  your  secretary,  and  will  submit  to 
you  the  conclusions  to  which  I have  been  led  in  the  course  of 
forty  years  ’ practice,  first  as  director,  and  for  twenty-six  years 
as  the  administrator  of  the  largest  of  the  Factory  Mutual  Fire 
Insurance  Companies  of  New  England. 

“My  conclusions  may  be  justified  by  the  fact  that  during 
the  twelve  months  ending  April  30,  the  company  of  which  I am 
president  has  insured  factories  and  workshops  against  loss  by 
fire  and  loss  from  the  breakage  or  leakage  of  sprinklers  to  the 
value  of  two  hundred  and  six  million  dollars,  with  a total  loss 
by  fire  and  water  in  twelve  months  of  less  than  thirty-four 
thousand  dollars  paid  on  more  than  three  hundred  and  forty 
claims  for  single  losses.  That  is  the  rate  of  one  cent  and  sixty- 
five  hundredths  upon  each  hundred  dollars  insured  twelve 
months,  of  which  during  the  last  extremely  cold  and  fluctuating 
winter  the  losses  by  the  leakage  of  sprinklers  account  sub- 


OF  MUTUAL  INSURANCE 


421 


stantially  for  forty  hundredths  of  a cent,  leaving  the  loss  by 
fire  one  cent  and  a quarter  per  hundred  dollars  of  property 
insured. 

“The  companies  associated  with  ours,  not  in  administra- 
tion but  in  the  executive  work  of  inspection,  making  plans, 
laying  out  pump,  hydrant  and  sprinkler  service,  and  other  simi- 
lar services  rendered  to  our  members,  have  with  this  company 
carried  for  the  twelve  months  past  insurance  on  property  to  the 
value  of  about  fourteen  hundred  million  dollars  with  almost 
identical  and  corresponding  results,  varying  but  a trifle  from 
our  own,  on  some  cases  even  a little  better. 

“This  insured  property,  in  my  own  and  in  the  most  con- 
servative of  the  older  companies,  consists  of  certain  classes  of 
textile  factories,  paper  mills,  machine  shops  with  some  wood 
working,  metal  working,  dye  works,  printeries  and  bleacheries, 
and  a small  miscellaneous  class  in  which  the  fire  hazard  is  of 
like  kind  to  that  with  which  we  have  become  familiar  in  deal- 
ing with  our  principal  classes.  There  are  many  risks  of  as  good 
quality  in  other  classes,  but  we  do  not  expand  for  the  reason 
that  our  members  are  not  seeking  profit.  They  appoint  the  offic- 
ers as  their  agents  to  save  them  from  loss,  and  as  the  amount 
and  diversity  of  the  work  is  about  all  that  the  executive  officers 
and  inspectors  can  suitably  cover  and  control,  we  refuse  all  out- 
side hazards  that  are  not  of  an  analogous  kind,  no  matter  how 
safe  they  may  have  been  or  might  be  made.  We  have  nothing 
to  sell.  Our  expenses  are  very  small,  less  than  four  cents  on  a 
hundred  dollars  insured,  and  fully  half  of  that  is  expended  in 
the  service  of  engineers  and  experts,  making  inspections,  lay- 
outs and  plans,  and  in  executing  plans  which  are  of  the  greatest 
service  to  our  members,  irrespective  of  the  contract  of  insur- 
ance. 

“It  is  a great  satisfaction  to  add  as  a matter  of  personal 
experience  that  while  in  the  period  antecedent  to  my  becoming 
the  administrator  and  executive  officer  of  the  company,  there 
had  been  many  lives  lost  in  calamitous  fires,  in  the  twenty-six 
years  of  my  own  administration  not  one  single  life  has  been 
lost  by  fire  in  any  risk  that  has  come  under  my  supervision. 


422 


A HAND  BOOK 


A LOW  COST. 

“The  losses  by  fire  in  the  senior  Mutual  companies  for  the 
past  ten  years  have  averaged  less  than  six  cents  a year  per 
hundred  dollars,  or  less  than  sixty  cents  for  the  whole  period  of 
ten  years.  Their  expenses  are  less  than  four  cents  a year.  Now, 
when  it  is  remarked  that  the  losses  outside  our  range  are  sixty 
cents  a year  and  expenses,  which  cannot  be  readily  diminished, 
are  nearly  forty  cents  a year,  it  is  not  to  be  wondered  at  that 
many  of  your  members  are  eager  to  secure  the  benefit  of  this 
very  low  cost. 

“How,  then  can  you  do  it?  There  is  but  one  way.  The 
owner,  builder  and  occupant  of  property  are  the  only  persons 
that  can  prevent  loss  by  fire  on  their  premises.  All  that  the 
factory  Mutual  underwriters  can  do  is  to  give  owners  and 
agents  information  and  instruction  how  to  prevent  loss,  and  all 
that  the  Mutual  companies  or  the  stock  companies  can  do  in 
case  of  loss  is  to  pay  a certain  sum  of  money  for  indemnity  so 
far  as  money  may  compensate  for  the  loss.  The  executive 
officers  of  the  factory  Mutual  companies  have  only  been  primary 
school  masters,  teaching  the  alphabet  of  construction,  protection 
and  prevention.  Had  not  the  pupils  been  apt  and  ready  to  com- 
prehend their  own  interest  in  the  matter,  the  work  of  the  saving 
which  I have  disclosed  to  you  could  never  have  been  accom- 
plished. It,  therefore,  rests  with  you,  the  members  of  this  asso- 
ciation, to  reduce  the  cost  of  insurance  on  your  property,  and 
you  only  can  do  it. 

“If  you  undertake  to  organize  a Mutual,  even  in  risks  that 
are  qualified  to  become  Mutual  risks,  merely  for  the  purpose  of 
getting  the  lower  rate  of  premium,  you  will  utterly  fail.  There 
is  no  virtue  in  the  name  of  Mutual.  All  underwriting  is  Mutual. 
You  contribute  a premium  to  the  funds  of  a stock  insurance 
company  and  your  losses  and  expenses  are  paid  out  of  your  own 
premiums.  The  capital  is  nothing  but  a guarantee,  if  the  capital 
is  impaired  by  losses  and  expenses,  it  must  either  be  made  up 
by  the  stock  holders  or  the  company  will  be  enjoined  and  put 
into  bankruptcy.  And  precisely,  the  same  way,  the  sum  depos- 


OF  MUTUAL  INSURANCE 


423 


ited  with  the  Mutual  companies  under  the  name  of  premium  is 
the  only  source  from  which  losses  and  expenses  are  paid. 

“What,  then,  is  the  first  condition  precedent  to  reducing 
the  premiums  on  fire  insurance  which  are  not  yet  high  enough? 
It  is  this:  Let  every  man  answer  to  himself,  ‘Is  my  building 
constructed  as  safely  as  I would  construct  it  were  I to  insure 
it  myself?  Is  it  protected  with  apparatus  such  as  I would  put 
in  if  I were  insuring  it  myself?  Is  it  kept  as  clean,  as  free  of 
hazard  in  occupancy?  Is  it  watched  and  inspected  as  it  would 
be  by  any  one  of  common  sense  who  insured  himself  V 

“Now,  unless  each  one  of  you  representing  a large  factory 
or  workshop,  can  answer  these  questions  ‘Yes’,  you  are  not  yet 
qualified  to  become  members  of  a safe  Mutual  company.  That 
is  a very  extreme  statement  of  a fact  subject  to  very  slight 
variation.  There  are  mills  and  workshops  on  which  the  con- 
struction is  not  quite  up  to  the  standard,  but  in  safe  guards  and 
in  occupancy  these  risks  are  up  to  the  present  standard.  More- 
over, a risk  slightly  defective  in  construction,  owned  and  oper- 
ated by  a man  whose  whole  fortune  is  in  it,  who  lives  near  it  or 
in  it,  and  is  about  it  all  the  time,  is  in  some  measure  a better 
risk  than  a large  factory  building  belonging  to  a distant  cor- 
poration supervised  by  an  agent  who  has  not  that  personal 
interest  in  it  to  compel  him  to  exercise  the  utmost  care. 

DO  NOT  EXPECT  PROFIT. 

“I,  therefore,  counsel  you  not  to  expect  gain,  and  I counsel 
you  to  go  slowly  in  any  effort  to  organize  Mutual  insurance 
companies  to  cover  works  that  are  not  now  qualified  to  be  in- 
sured in  the  junior  Mutuals  which  are  extending  their  services 
over  risks  that  the  seniors  would  not  take,  and  I caution  you 
against  any  effort  to  establish  a Mutual  system  over  risks  that 
are  in  the  congested  districts  of  cities  or  that  are  in  any  con- 
siderable measure  subject  to  what  is  known  as  the  conflagration 
hazard. 

“Yet,  there  is  an  immense  field  open  to  you  all,  by  occupy- 
ing which  you  may  greatly  reduce  the  cost  of  your  insurance 


424 


A HAND  BOOK 


and  induce  the  underwriters  to  grant  you  lower  charges  of  prem- 
iums in  recognition  of  your  own  duty  fulfilled  to  your  own 
property. 

“ Without  any  effort  to  make  exact  analyses  of  the  losses 
by  fire  in  the  United  States,  which  now  average  one  hundred  and 
fifty  million  dollars  a year,  with  an  occasional  increase  from  a 
conflagration,  I am  satisfied  that  more  than  half  this  loss  occurs 
in  large  establishments,  either  for  the  manufacture  or  sale  of 
products,  in  which  losses  range  from  fifty  thousand  to  a million 
dollars  each.  I think  that  less  than  half  the  cost  of  the  annual 
ash  heap  occurs  in  the  much  greater  number  of  small  claims. 
That  fact  brings  the  responsibility  for  this  loss  more  upon  the 
members  of  this  association  than  upon  any  other  single  body  of 
men  in  the  United  States. 

“Now,  when  you  add  to  the  average  loss  of  one  hundred 
and  fifty  million  dollars,  the  cost  of  sustaining  insurance  com- 
panies, the  excessive  cost  of  water  supplies  due  to  the  unfit  con- 
struction and  protection  of  city  buildings,  and  the  excessive 
cost  of  fire  departments  due  to  the  same  causes,  you  reach  a 
sum,  the  cost  of  fire  to  the  people  of  this  country,  annually, 
of  two  hundred  and  fifty  to  three  hundred  million  dollars,  which 
is  equal  to  ten  per  cent  to  fifteen  per  cent  of  the  annual  profit 
or  saving  of  the  nation  that  is  possible  in  any  normal  year.  In 
other  words,  if  the  annual  product  of  this  country  is  two  hun- 
dred and  twenty-five  dollars  per  head  of  the  population,  at  which 
I compute  it,  reaching  the  sum  of  a fraction  under  nineteen 
thousand  million  dollars,  or  what  is  commonly  called  nineteen 
billions,  a larger  estimate  of  the  value  of  our  annual  product 
than  has  ever  been  put  forward  by  any  other  economist  or  sta- 
tistician, we  may  set  aside,  as  the  profit  or  increase  of  capital 
ten  per  cent  of  this  sum,  or  nine  hundred  million  dollars  a year 
saved  for  the  addition  to  or  maintainance  of  the  capital  of  the 
nation,  ninety  per  cent  being  consumed  in  the  process  of  pro- 
duction. In  that  event  the  ash  heap  and  the  other  expenses  or 
cost  of  fires  comes  to  fifteen  per  cent  of  the  normal  profit  of 
the  whole  nation,  and  a very  large  part  of  that  occurs  in  risks 
for  which  the  members  of  this  association  are  responsible. 


OF  MUTUAL  INSURANCE 


425 


WHAT  WILL  YOU  DO? 

“What  are  you  going  to  do  about  it?  Limit  yourselves  to 
charging  the  managers  of  the  stock  fire  insurance  companies 
with  extortion,  when  for  the  past  ten  years  or  more  there  has 
been  no  profit  in  fire  insurance  ? On  the  contrary,  a heavy  loss, 
made  up  only  by  the  banking  department  of  these  companies. 
All  the  dividends  that  they  have  made  and  their  whole  existence 
have  depended  on  the  income  from  the  investment  of  their  capi- 
tal, their  surplus  and  their  annual  premiums.  In  this  way  they 
have  been  enabled  to  continue  to  insure  your  risks  and  others 
at  a loss. 

“Again,  I ask  you  will  you  limit  yourselves  to  denouncing 
the  managers  of  insurance  companies,  without  knowledge  of 
the  facts,  or  with  only  a limited  knowledge  of  the  limited  part 
of  each  of  your  own  occupations;  or  will  you  endeavor  to  re- 
duce the  cost  of  insurance  by  attending  to  your  own  duties,  to 
your  own  property,  and  by  removing  the  outrageous  causes  of 
loss  which  you  tolerate  because  you  have  been  trusting  to  a 
policy  of  insurance  for  your  protection  and  neglecting  in  a vast 
number  of  cases  to  protect  yourselves? 

* 1 1 know  there  are  conspicuous  exceptions  even  among  those 
who  are  not  yet  insured  under  Mutual  principle  and  subject  to 
the  inspections  of  the  Mutual  underwriters.  I know  that  here 
and  there  is  a large  establishment  which  is  as  thoroughly  guard- 
ed and  as  well  inspected  as  any  factory  Mutual  risk;  but  how 
many  such  are  there?  Do  they  number  one  in  a hundred  in 
proportion  to  the  risks  that  are  written  in  the  factory  Mutuals? 
I think  not.  I should  be  very  glad  to  have  it  proved  that  I am 
in  error. 

“What  then  would  you  do  about  it,  if  I told  you  that  it 
is  not  yet  safe  for  you  to  attempt  to  organize  a general  Mutual 
system  for  the  general  protection  of  your  factories  and  work- 
shops? You  can  do  the  one  thing  that  lies  at  the  foundation 
of  the  Mutual  system : Establish  a well-organized  and  complete 
system  of  monthly  or  quarterly  inspections,  to  be  made  by 
trained  inspectors,  reporting  to  yourselves  in  order  that  you 


426 


A HAND  BOOK 


may  immediately  remove  the  causes  of  hazard  which  you  now 
tolerate  simply  from  ignorance;  and  then  supplement  that  in- 
spection by  experts  by  establishing  blanks  and  putting  in  force 
a system  of  self-inspection  of  your  own  premises,  as  more  than 
one-half  the  factory  Mutual  members  now  conduct  that  work, 
rapidly  increasing  in  number  until  all  will  establish  that  prac- 
tice. You  may  do  this  by  agreement  of  the  owners  of  insured 
property  in  a single  block  of  a city,  in  a single  ward,  in  a whole 
city,  a whole  county,  or  a whole  state,  or  you  may  organize  a 
system  in  your  national  association  under  the  supervision  of 
your  officers,  by  which  you  may  slowly  but  surely  establish  a 
quarterly  inspection  of  every  establishment  belonging  to  every 
member  in  the  United  States. 

“I  know  not  how  many  you  number;  I suppose  there  may 
be  five  thousand  separate  risks  represented  by  your  members. 
What  of  that?  There  are  more  than  three  thousand  separate 
risks  or  buildings  standing  on  the  premises  of  the  thousand 
members  (a  few  more  or  less)  whose  property  is  insured  in  the 
-senior  Mutual  companies,  with  a considerable  number  of  the 
junior  risks  added — a total  valuation  to-day  of  about  fourteen 
hundred  million  dollars,  and  that  great  line  of  risks,  covering 
a wide  area  as  far  as  the  Mississippi  river  into  Alabama,  is 
inspected  three  times  a year  on  our  behalf,  with  frequent  special 
inspections,  on  request,  by  experts  under  our  supervision,  and 
the  cost  of  the  service  is  assessed  at  one  hundred  and  thirty- 
three  dollars  per  million  on  the  amount  of  risks  outstanding 
December  31,  1904,  making  the  sum  appropriated  for  the  serv- 
ice of  the  present  year  $170,792.95.  Out  of  this  sum  will  be 
defrayed  the  salaries  of  all  men  employed  in  the  bureau  of 
inspections,  in  outside  and  inside  service.  It  will  cover  the  cost 
of  all  plans  (the  best  insurance  ever  made  of  which  I send  you 
an  example),  each  edition  being  printed  in  sufficient  numbers 
to  supply  all  the  insurance  companies,  the  owners  and  the  agents 
with  such  copies  as  they  may  require;  and  the  sum  will  cover 
all  the  engineering  service,  civil,  hydraulic,  electrical  and  chemi- 
cal, which  we  render  to  our  members  on  request. 


OF  MUTUAL  INSURANCE 


ill 


“Now,  if  by  this  system,  mainly  of  inspection  and  of  in- 
struction following  inspections,  we  have  been  enabled  to  reduce 
the  losses  by  fire  for  ten  years  to  an  average  of  six  cents  per 
hundred  dollars  and  for  the  last  year  to  an  average  of  less  than 
two  cents  per  hundred  dollars,  what  will  you  do  about  it?  How 
much  will  you  reduce  the  waste  of  fire  in  your  own  factories  and 
workshops  during  the  next  five  years  by  doing  likewise?  How 
much  will  you  save  yourselves  in  the  interruption  of  your  busi- 
ness, often  the  worse  loss  that  ensues  after  a fire?  By  the  way, 
we  not  only  give  you  our  policies  for  indemnity  against  the 
actual  loss  by  fire,  but  we  also  issue  policies  under  the  name  of 
‘use  and  occupancy,’  insuring  the  fixed  charges  during  the  period 
in  which  works  may  be  stopped  for  repairs,  and  we  insure 
against  the  leakage  of  sprinklers — all  that  is  within  the  six 
cents  and  the  two  cents  a year.” 

Mr.  Atkinson’s  public  life  has  been  very  largely  devoted 
to  discovering  and  teaching  methods  of  reducing  or  avoiding 
expenses.  His  forty  years’  record  as  an  insurance  officer  is 
practically  summed  up  in  the  essays  given  in  the  preceeding 
pages. 

In  addition  to  this  he  has  made  several  valuable  inventions 
which  he  has  dedicated  to  the  public,  in  no  case  taking  out  a 
patent.  Such  a life  gives  a man  authority ; he  has  a right  to  call 
on  people  to  listen. 

A GOOD  SUGGESTION. 

It  is  suggested  that  the  Mutuals  in  other  lines  take  up  this 
same  work,  the  reduction  of  expenses,  and  do  something  to  re- 
duce the  fire  waste,  which  is  such  an  intolerable  burden  upon 
the  industries  of  the  country.  A system  of  inspection  might  be 
organized,  extending  all  over  the  country,  not  necessarily  on 
the  same  plan  as  that  of  the  factory  Mutuals,  but  still  efficient. 

No  honest  man  desires  that  his  home  or  stock  shall  burn. 
He  is  willing  to  do  what  he  can  to  increase  the  safety  of  his 
property,  the  same  is  true  of  the  owners  of  shops  and  factories, 
of  the  lodges,  churches  or  other  bodies  which  own  property, 
and  of  the  public  also.  As  Mr.  Atkinson  rather  more  than 


428 


A HAND  BOOK 


hints,  there  are  two  necessary  preliminaries,  to  interest  the 
insured  in  the  matter  and  to  educate  him  up  to  the  proper 
standard.  While  it  would  seem  that  every  man  should  be  inter- 
ested in  measures  designated  to  add  to  the  safety  of  his  prop- 
erty, it  is  a fact  that  it  is  a difficult  task  to  overcome  prejudices 
and  to  awaken  people  from  apathy. 

Every  one  who  has  served  as  inspector  for  the  fire  depart- 
ment of  a city  will  bear  witness  to  the  fact  that  while  he  was 
on  his  rounds  trying  to  show  people  how  to  keep  their  property 
from  burning,  doors  have  often  been  shut  in  his  face  and  when 
he  persisted  in  performing  the  duties  allotted  to  him,  he  was 
made  the  recipient  of  abundant  profanity.  And  when  dangerous 
constructions,  or  hazardous  defects  have  been  discovered,  he 
knows  how  difficult  it  was  to  have  them  remedied.  Time  and 
perseverance  will  generally  overcome  this  trouble,  and  when 
owners  of  property  become  satisfied  that  they  are  really  benefit- 
ed by  the  inspections,  they  will  fall  in  and  help. 

Having  accomplished  this,  there  remains  the  task  of  induc- 
ing the  Mutual  policy  holders  to  consider  themselves  as  active 
members  instead  of  sleeping  partners.  It  requires  intelligence, 
integrity  and  public  spirit  to  be  a useful  member  of  a co- 
operative body,  and  this  truth  is  not  by  any  means  appreciated 
as  it  should  be. 

The  time  will  come  when  Mutuals  will  join  in  a system  of 
inspection  which  will  reduce  fire  losses  to  a minimum,  a time 
when  the  fire  waste  shall  be  but  the  smallest  part  of  the  ex- 
penses of  Mutuals,  the  heaviest  outlay  being  for  fire  prevention, 
while  the  total  cost  of  the  policy  holder  will  be  far  below  what 
it  is  to-day. 

Mr.  Atkinson  has  opened  up  a new  line  and  to  him  not 
only  the  Mutuals  but  the  whole  country  should  return  their 
hearty  thanks. 

(Since  the  foregoing  was  written,  Mr.  Atkinson  has  passed 
away.  He  died  December  11,  1905,  at  a very  advanced  age. 
His  whole  life  was  but  a long  series  of  services  to  humanity. 
His  name  will  ever  be  a household  word  among  the  Mutuals  of 
the  country.) 


CHAPTER  XXIII. 


THE  PHILADELPHIA  CONTRIBUTION- 

SHIP. 

(The  history  of  the  first  hundred  years  of  the  life  of  this 
organization  is  condensed  from  the  address  of  Horace  Binney 
at  the  Centennial  meeting  in  1852.) 

At  the  beginning  of  the  year  1752  not  an  inhabitant  of 
Philadelphia  possessed  a single  dollar  of  indemnity  against  the 
loss  of  his  dwelling  by  fire.  On  the  18th  of  February  1752  a 
notice  appeared  in  the  Pennsylvania  Gazette  inviting  subscrip- 
tions generally.  The  charter,  or  as  it  was  then  called,  the 
deed  of  settlement,  had  already  been  drawn  up  and  the  notice 
read  as  follows:  “All  persons  inclined  to  subscribe  to  the 
articles  of  insurance  of  houses  from  fire,  in  and  near  the  city, 
are  desired  to  appear  at  the  court  house,  where  attendance  will 
be  given  to  take  in  their  subscriptions  every  seventh  day  of  the 
week,  in  the  afternoon,  until  the  13th  of  April  next,  being  the 
day  appointed  by  the  said  articles  for  electing  twelve  directors 
and  a treasurer.”  Accordingly,  on  the  13th  of  April  1752  the 
subscribers  convened  at  the  court  house  and  elected  the  direc- 
tors and  treasurer  for  the  current  year. 

The  members  were  called  contributors.  The  first  name 
subscribed  was  that  of  James  Hamilton,  the  lieutenant  gov- 
ernor of  the  Province  under  the  Proprietaries.  The  first  name 
of  a private  citizen  is  that  of  Benjamin  Franklin,  who  was  also 
at  the  head  of  the  directors  chosen,  at  the  first  election.  John 
Smith  was  the  first  treasurer  and  also  the  first  person  to  insure. 
He  took  out  two  policies.  The  directors  met  monthly,  absentees 
were  fined  two  shillings;  tardy  ones,  half  that  sum.  The  funds 
thus  raised  by  fines  were  expended  first  in  placing  milestones 

—429 


430 


A HAND  BOOK 


along  the  road  from  Philadelphia  to  Trenton  and  later  from 
Philadelphia  southward  toward  New  Castle,  Delaware.  These 
were  the  first  milestones  in  that  portion  of  the  country. 

The  company  did  not  incorporate  at  the  beginning,  in  fact, 
not  till  1768,  but  at  their  first  meeting  after  the  first  election, 
the  directors  adopted  a seal,  the  four  clasped  hands.  This 
device  was  also  placed  upon  buildings  insured  by  the  company. 
Hence  came  the  common  synonym  for  the  company  the  “Hand 
in  Hand.”  Through  this  title  was  not  mentioned  in  the  deed 
of  settlement,  in  the  policies  nor  in  the  minute  books,  the 
thought  of  the  name  seems  to  have  been  in  the  minds  of  the 
directors,  and  the  device  was  a very  appropriate  symbol  of  the 
Mutual  sentiment  which  prompted  the  organization  of  the 
society.  It  is  still  the  seal  of  the  corporation. 

EARLY  METHODS. 

Of  the  policy  of  the  company,  Mr.  Binney  says : 

“The  policy  of  insurance  was  for  seven  years.  The  prem- 
ium was  neither  a rate  payable  annually,  nor  for  the  entire  term 
of  seven  years,  but  was  the  deposit  of  a sum,  the  use  or  interest 
of  which  during  the  policy  belonged  to  the  company  and  so  it 
continues  to  this  day. 

“The  risk  of  all  fires  was  assumed  without  any  exception 
of  public  enemies,  military  or  usurped  power,  rebellion,  civil 
commotion  or  riot;  and  so  it  continues. 

“The  property  insured  was  protected  during  the  term 
against  any  number  of  losses  not  total,  without  reducing  the 
amount  insured  on  the  premises,  or  imparing  the  deposit.  In 
ease  of  destruction  from  the  first  floor  upwards  at  any  time,  the 
company  had  an  option  to  pay  the  whole  insurance  and  so  end 
the  policy ; or  to  rebuild,  the  policy  continuing  in  force ; and  how 
often  soever  the  destruction  of  fire,  and  the  rebuilding  might 
take  place  during  the  term  the  policy  continued  in  force.  And 
so  it  continues. 

“The  payment  of  the  deposit,  the  acceptance  of  the  policy,. 


OF  MUTUAL  INSURANCE 


431 


and  the  signature  of  the  deed  of  settlement,  made  the  assured 
a member  of  the  company,  and  a party  to  all  the  articles  in  the 
deed.  And  so  it  is  to  this  day,  the  signature  of  the  deed  being 
sometimes  neglected,  as  the  acts  are  of  equal  efficacy. 

“The  personal  liability  of  the  members  for  losses,  beyond 
their  own  deposits,  was  half  as  much  more,  in  case  a single  fire, 
beginning  in  one  house  and  damaging  one  or  more  houses,  should 
sweep  away  all  the  funds  of  the  company. 

“The  concern  was  managed  for  the  profit  and  loss  of  the 
members,  interest  being  allowed  to  them  on  their  deposits,  in 
proportion  to  the  whole  amount  received  by  the  company,  and  a 
proportion  of  the  losses  and  expenses  charged  to  them,  and  the 
balance  settled  at  the  expiration  of  the  policy. 

“Executors,  administrators,  and  assigns  were  included  as 
members,  there  being  a provision  for  notice  of  transfer  and  as- 
signment within  a limited  time,  and  the  approbation  of  the 
directors.  It  is  so  this  day. 

MODIFICATIONS. 

“The  modifications  since  made  of  some  of  these  principle* 
are  these: 

“The  policy  is  now  perpetual,  with  liberty  to  determine  it 
on  either  side,  on  certain  terms. 

“The  feature  of  personal  liability  in  any  event  beyond  the 
deposit  money  is  obliterated. 

“The  profit  and  loss  principle  was  expunged  at  an  early 
day;  and  it  will  interest  you  to  learn  the  effect  of  this  principle 
while  it  operated,  and  the  development  of  business  that  instantly 
followed  the  resolution  of  the  company  abolishing  it. 

“While  the  principle  was  in  force,  the  company  was  in 
effect  a dividend-paying  company,  the  dividend  being  appor- 
tioned and  paid  periodically  and  there  being  no  capital  nor 
security  for  losses  beyond  the  actual  deposits  and  the  interest 
not  divided,  except  the  guaranty  in  one  event  of  a further 
payment  of  fifty  per  cent  of  each  member’s  deposit.  It  was  a 
cardinal  defect  in  the  scheme.  Under  such  a principle  I do  not 
*ee  how  the  company  could  have  become  extensively  useful. 


432 


A HAND  BOOK 


“The  effect  of  it  in  the  first  ten  years  of  the  company  was 
this:  The  amount  of  their  policies  at  the  end  of  the  first  year, 
namely  25th  of  March,  1753,  was  $108,360;  and  the  amount  of 
their  deposits  $1,261.93.  At  the  expiration  of  ten  years,  namely, 
in  March,  1763,  the  sum  insured  for  that  year  was  $67,773;  and 
the  deposits  $982.25.  There  was  a falling  off  of  nearly  two- 
fifths  at  the  end  of  ten  years.  Many  did  not  renew  their  poli- 
cies at  the  end  of  the  term.  The  minutes  show  the  fact  and  the 
efforts  of  the  directors  to  counteract  it.  New  business  did  not 
come  in.  Reflecting  men  must  have  seen  the  defect,  and  de- 
clined the  security.  Others,  perhaps,  thought  the  whole  affair 
a small  one.  With  an  almost  entire  ignorance  of  the  average 
risks  of  fire  in  the  city,  and  of  the  proper  rates  of  premium  to 
be  charged  for  insuring  against  them,  it  seems  to  be  remarkable 
that  they  did  not  perceive  at  the  outset  both  the  benefit  and  the 
necessity  of  accumulation,  to  give  the  company  anything  like 
stability — anything  deserving  the  name  of  security  against  the 
variations  of  loss  from  time  to  time,  which  all  perceive,  though 
the  general  ratio  is  even  now  for  the  most  part  unobserved,  or 
but  partially  known.  I am  inclined  to  think  that  the  company 
at  first  was  mislead  by  a foreign  example,  perhaps  not  perfectly 
understood,  perhaps  successful  against  all  previous  probabilities. 
It  is  quite  remarkable,  indeed,  that  the  company  should  have 
gone  on  for  even  these  ten  years  without  an  admonition,  that  the 
profit  on  the  deposits  could  not  be  divided  at  any  time,  without 
a large  reservation  for  undetermined  contingencies.  It  seems 
as  if  a loss  of  a few  thousand  dollars  could  not  have  occirrsd 
in  the  whole  period,  without  sweeping  away  the  deposit  furd, 
and  breaking  up  the  company.  It  is  nevertheless  true,  that  the 
interest  upon  the  deposits  did  pay  the  losses  and  expenses,  and 
leave  a dividend  to  the  depositors  whose  policies  from  time  to 
time  expired. 

“The  facts  say  something  perhaps  in  favor  of  the  general 
carefulness,  sobriety,  and  good  order  of  our  city  at  that  early 
time,  and  for  the  then  common  union  of  all  the  able-bodied 
inhabitants  at  fires,  guided  by  men  of  known  energy  and  char- 
acter, at  a day,  when  such  men  took  the  lead  with  general  con- 


OF  MUTUAL  INSURANCE 


433 


sent,  and  compensated  for  many  defects  both  in  the  apparatus 
and  supply  of  water.  But  all  subsequent  experience  seems  to  be 
against  fire  insurance  companies  upon  such  a principle,  as  it  is 
also  against  such  companies  as  approach  it  in  practice,  while 
they  have  a better  principle  in  their  constitutions. 

ANOTHER  CHANGE. 

“At  a general  meeting  in  April,  1763,  the  members  unani- 
mously expunged  this  provision  from  their  deed  of  settlement, 
and  substituted  two  cardinal  provisions  in  its  place:  1.  That 
the  interest  arising  from  the  stock,  should  be  carried  to  one  com- 
mon account,  to  answer  the  contingent  charges  of  the  company, 
and  all  losses  and  damages  that  might  happen  to  the  same.  2. 
That  no  part  of  the  deposit  money  should  be  expended  in  repair- 
ing or  paying  for  any  damage  done  by  fire,  until  the  balance  of 
the  interest  money,  as  shall  accrue  to  the  time  of  such  fire,  shall 
be  first  expended. 

“This  change  seems  to  have  been  recommended  by  the 
directors,  upon  the  ground  mainly  of  convenience,  to  avoid  the 
necessity  of  troublesome  calculations  of  dividends  of  profit  upon 
the  expiring  policies ; a sufficient  reason,  perhaps  to  be  assigned 
at  the  general  meeting.  But  it  is  impossible  to  believe  that  the 
members  of  the  board  of  directors  did  not  perceive  by  the  con- 
dition of  the  company,  as  well  as  by  the  consideration  of  general 
principles,  a far  weightier  reason  in  the  necessity  of  giving  tone 
to  a languishing  body,  so  as  finally  to  endow  it  with  strength  to 
meet  all  probable  hazards  in  reserve  for  it.  I have  no  doubt 
that  the  last  was  a ruling  motive  and  object,  and  I desire  to 
give  them  credit  for  it.  It  was  a great  thought.  So  far  as  I 
can  discover  from  the  constitution  of  a primitive  Mutual  assur- 
ance fire  company  elsewhere,  it  was  an  original  thought,  and  it 
was  undoubtedly  a thought  as  full  of  good-will  towards  the  dis- 
tant future,  as  it  was  of  precaution  for  the  time  at  hand — for 
those  who  might  at  any  subsequent  day  seek  the  security,  as 
27 


434 


A HAND  BOOK 


well  as  for  those  who  had  then  availed  themselves  of  it.  It  has 
been  the  building  up  of  the  company  to  its  present  adult  strength 
and  solidity.’ ’ 

As  a result  of  the  changes,  the  company  grew  stronger  both 
in  reserve  and  in  business.  In  those  days  the  subject  of  insur- 
ance had  been  studied  but  little.  The  hazards  were  guessed  at. 
The  building  up  of  a reserve  was  commenced  none  too  soon. 
Concerning  this  Mr.  Binney  says: 

“And  in  this  state  of  our  knowledge,  the  thing  that  was  the 
best  for  them  to  do,  was  what  they  did  and  what  we  do  at  pres- 
ent, and  it  is  still  the  best  than  can  be  done  by  us,  namely,  to 
regard  our  premiums  of  insurance  as  including  no  profit  at  all, 
but  as  requiring  constant  accumulation  to  meet  the  unknown 
hazards  of  the  time  to  come,  and  which  I fear  are  increasing 
among  us  from  day  to  day.  We  may  be  wrong,  and  if  we  are, 
we  are  wrong  on  the  right  side.  Those  who  have  already  de- 
clared their  profits,  their  estimated  profits,  and  paid  them  away 
without  large  reservations  for  the  future,  may  be,  and  in<*ted 
some  of  them  have  already  been,  wrong  on  the  wrong  side.  I 
do  not  say  that  there  is  one  rule  for  them  and  another  for  us. 
I think  there  is  not.  But  I know  from  observation  in  this  com- 
pany, of  which  I became  a director  in  1817,  and  have  constantly 
been  so  for  the  last  twenty-one  years,  that  is  the  rule  for  us, 
which  for  a long  time  to  come  will  be  the  only  rule  for  us,  that 
is  to  say,  the  accumulation  without  dividends. 

“The  analogous  rule  in  companies  that  insure  for  profit 
at  the  present  rates,  would  be  the  rule  of  very  small  dividends 
of  profit,  and  large  reservations  for  the  unknown  future,  until 
the  true  rule  shall  be  better  known.  For  there  are  great  calam- 
ities by  fire,  rarely  occurring,  as  well  as  less  calamities  frequent- 
ly occurring.  There  are  years  that  may  be  called  in  life  risks, 
years  of  plague  and  cholera,  as  well  as  years  of  usual  or  ordin- 
ary death;  and  such  devastations  or  mortal  years,  concern  the 
insurers  against  loss  by  fire  even  more  than  they  appear  to  con- 
cern insurers  of  life,  who  rarely  assume  the  risk  of  life  in  the 
class  particularly  exposed  to  plague  and  cholera.  ‘Tie  l < ws 
no  distinction  of  subjects  and  houses  can  not  move  away  from 


OF  MUTUAL  INSURANCE 


435 


it.  Such  calamities  come,  it  is  true,  at  more  distant  interval i; 
but  still  they  come.  A century,  and  even  a shorter  period,  is 
the  witness  of  them ; and  the  duty  of  those  who  insure  and  mean 
to  keep  insuring  to  all  future  time,  is  in  some  mannei  to  provide 
for  them;  and  with  no  knowledge  at  present  that  enables  us  to 
say  with  demonstrable  probability,  what  these  disasters  will  be, 
or  when  they  may  be  expected,  the  law  of  our  institution  does 
the  best  that  can  be  done,  by  separating  our  concern  from  the 
hope  of  gain,  and  from  its  one-sided  speculations  and  estimates, 
and  by  enlarging  our  security  to  the  utmost  against  the  worst 
that  may  happen.  If  our  successors  shall  at  the  end  of  another 
century  find  they  have  too  much,  it  will  prove  that  the  premiums, 
assisted  by  the  accumulations  which  the  deed  of  settlement  re- 
quires, have  been  unnecessarily  high,  and  the  strength  of  the 
company  will  then  become  a public  benefaction  to  the  whole 
city  and  its  neighborhood,  in  the  reduction  of  rates  of  premium 
upon  brick  and  stone  buildings. 

STRIKING  FACTS. 

“But  let  me  state  very  striking  facts  in  our  history,  to  illus- 
trate the  degree  of  caution  with  which  we  should  receive  calcu- 
lations as  to  the  future,  with  our  present  knowledge.  One  of 
them  is  that  at  the  end  of  this  present  fiscal  year  of  our  com- 
pany 1852,  we  have,  with  a very  inconsiderable  fraction  of  ex- 
cess, the  same  proportion  of  funds  to  the  whole  mass  of  insur- 
ances that  we  had  at  the  end  of  the  fiscal  1842,  ten  years  ago, 
notwithstanding  the  intermediate  accumulation.  And  the  other 
is  that,  if  the  great  fire  of  1850  had  occurred  in  the  year  1808, 
it  would  have  swept  away  the  whole  amount  of  our  funds, 
deposits  and  accumulations  for  half  a century.  Our  insurances 
in  the  quarter  where  the  fire  occurred,  are  supposed  to  have  been 
of  the  same  amount  or  nearly  so  in  1808,  as  in  the  year  1850. 
The  two  Mutual  assurance  companies  of  this  city,  who  covered 
at  an  early  date  that  quarter,  as  I may  call  it,  bore  the  brunt 
of  that  storm;  and  as  it  was  to  come,  it  was  well  for  us  that 
it  did  not  come  sooner. 


436 


A HAND  BOOK 


“The  progress  of  the  company  has  been  from  that  time 
onward,  with  occasional  exceptions  of  disastrous  years;  and 
after  examination  of  our  books,  we  do  not  concur  in  opinion  with 
a very  estimable  and  respectable  annalist  of  our  city,  that  there 
ever  was  a period  when  a loss  of  any  extent  disturbed  the  fin- 
ances of  the  company.  In  the  war  of  the  Revolution,  and  in  the 
latter  days  of  paper  money,  when  the  investments  were  upon 
mortgage,  as  they  still  are  for  the  most  part,  and  when  to  exact 
immediate  payment,  was  to  get  paper  worth  one  in  fifty,  or  less, 
the  company  may  have  had  to  proceed  cautiously,  to  avoid  pay- 
ing a loss  in  the  same  paper;  but  except  in  such  cases,  the 
prompt  payment  of  a loss  cannot  have  disturbed  them  even  in 
their  infancy.  Their  advance  was  immediate  after  the  rule  of 
1763;  and  the  insurance  continued  to  increase  from  year  to  yea* 
afterwards,  to  the  present  time.  The  public  appear  to  have 
understood  the  value  of  the  change.” 

(The  paper  money  above  referred  to  was  that  of  the  Revolu- 
tion.) 

During  the  first  century,  the  company  gave  excellent  satis- 
faction. There  was  but  one  suit  at  law,  and  in  that  the  company 
was  successful.  On  one  other  occasion  the  directors  consulted  a 
lawyer,  but  no  suit  was  commenced. 

Thus  passed  the  first  century  and  for  many  years  after 
there  was  no  trouble. 

The  company  did  business  only  in  Philadelphia  and  its 
suburbs,  only  selected  risks  were  taken  and  the  company  was 
never  engaged  in  litigation.  Losses  were  paid  in  full  as  soon 
as  adjudged  and  everything  appeared  to  be  satisfactory.  But 
in  1894  there  was  an  outbreak.  No  commissions  had  been 
paid  to  agents  till  1888.  From  that  time  until  recently  small 
commissions  were  paid  and  a number  of  small  but  perfectly 
good  risks  were  accepted. 

From  these  new  and  small  contributors  just  referred  to, 
the  whole  trouble  of  1894  sprang. 


OF  MUTUAL  INSURANCE 


437 


Prior  to  1894,  any  contributor  who  felt  so  disposed  attended 
the  annual  election  on  the  second  Monday  in  April  and  voted. 

Proxies,  the  legality  of  which  was  then  for  the  first  time 
questioned,  had  been  voted  for  upwards  of  fifty  years,  and 
probably  much  longer. 

That  so  few,  (generally  about  seventy-five)  voted,  probably 
arose  from  the  fact  that  the  contributors  were  entirely  satisfied 
with  the  management  of  the  company. 

Be  this  as  it  may,  however,  up  to  the  day  of  election  in 
1894  not  a single  complaint  from  any  contributor  had  ever 
reached  the  ears  of  the  board  against  the  policy  pursued  by  it, 
nor  a single  suggestion  or  intimation  that  a change  was  desir- 
able. 

On  the  second  Monday  of  April,  at  2 p.  m.,  the  annual 
election  was  held ; a great  crowd  of  persons  appeared  at  the  office 
of  the  company  to  carry  out  the  plan  of  electing  a new  board. 

For  such  an  attack  the  management  was  wholly  unprepared. 
The  new  ticket  submitted  did  not  contain  the  name  of  a single 
individual  who  had  been  a contributor  more  than  two  years,  save 
two  of  the  old  directors,  whose  names  were  used  without  their 
consent,  and,  with  a few  exceptions,  was  composed  of  those  who 
had,  through  brokers,  effected  insurance  in  small  amounts. 

It  was  not  possible  that  in  the  two  hours  allotted  to  the 
election  on  that  day  to  attempt  to  defeat  his  project.  A number 
of  contributors  in  the  neighborhood,  hearing  of  the  contest, 
came  in  and  voted,  and  at  4 o’clock  the  election  was  adjourned 
until  the  next  day  under  the  express  provisions  of  the  deed  of 
settlement.  The  actual  result  of  this  first  day  election,  in  view 
of  what  subsequently  happened,  is  not  important,  but  it  is  in- 
structive. 

While  it  is  not  stated  in  so  many  words,  it  is  clear  from 
this  account  that  there  was  an  attempt  to  get  control  of  the 
company.  The  opposition  went  into  court  and  a new  election 
was  ordered  and  resulted  in  an  overwhelming  victory  for  the 
old  management.  To  prevent  all  such  troubles  in  the  future, 
the  by-laws  were  so  changed  that  instead  cf  electing  the  entire 


438 


A HAND  BOOK 


twelve  directors  each  year,  but  three  were  chosen  to  serve  for 
four  years,  the  new  ones  being  elected  each  year. 

It  was  also  provided  that  the  present  assets  of  the  company 
should  remain  intact  but  the  directors  might  distribute  such 
proportion  of  the  profit  as  they  deemed  prudent.  The  com- 
pany has  gone  on  since  that  time  in  its  usual  course. 

The  following  is  the  resolution  referred  to. 

“Resolved:  That  the  present  assets  of  the  company  shall 
remain  intact,  and  that  the  directors  be  and  they  are  hereby 
authorized,  from  time  to  time,  at  their  discretion,  to  distribute 
among  the  policy  holders  of  the  corporation,  in  proportion  to 
their  deposits  held  by  the  company  on  policies  in  force  respec- 
tively, such  proportion  of  the  net  income  from  invested  funds 
as  they  deem  safe  and  prudent,  after  providing  for  losses  and 
depreciation  of  assets  and  making  such  additions  to  the  assets 
as  they  deem  expedient : Provided,  that  all  deposits  made  after 
this  date  shall  remain  at  least  ten  years  before  the  holder  of 
policies  issued  thereon  shall  receive  any  benefit  under  this  reso- 
lution: Provided,  further,  that  all  deposits  received  shall  be 
added  to  the  assets  of  the  company.  February  18th,  1895.” 

The  great  element  of  success  in  this  company  seems  to 
have  been  its  remarkable  ability  in  getting  good  men  and  keep- 
ing them.  During  the  first  century  there  were  only  106  different 
directors.  One  served  for  fifty  years,  twenty-eight  for  twenty 
years  or  more.  The  office  of  secretary  and  treasurer  were  con- 
solidated in  1817.  Since  that  time  but  four  persons  have  held 
the  office,  the  present  incumbent  having  been  elected  in  1859. 
The  following  letter  from  him  will  be  of  interest: 

“In  answer  to  your  request  of  the  24th  ult.  we  are  mailing 
you  today  copies  of  the  Centennial  History  of  this  company 
issued  in  1852,  an  address  to  the  members  at  the  time  of  the 
disputed  election,  issued  in  1894,  and  a copy  of  the  charter  as 
it  stands  at  present. 

“We  are  not  only  the  oldest  insurance  company  in  America, 
but  I believe  the  oldest  corporation. 

“We  write  only  1 Perpetual’  insurance  on  selected  risks  of 
brick  and  stone  buildings  in  Philadelphia  and  surrounding  coun- 
ties, being  limited  by  charter  to  Pennsylvania. 


OF  MUTUAL  INSURANCE 


439 


“We  originally  credited  each  depositor’s  (or  contributor’s) 
account  with  any  profits,  but  the  personal  liability  of  each,  over 
and  above  their  deposits,  was  not  attractive,  so  the  liability 
feature  was  removed  and  also  the  profit  sharing. 

“In  1895,  the  surplus  funds  being  sufficient,  profit  sharing 
was  resumed,  and  dividends  out  of  the  net  income  from  the 
surplus,  have  been  paid  on  policies  in  force  (according  to  the 
accompanying  notice)  at  the  rate  of  10  per  cent  a year  on  the 
amount  of  the  deposit. 

1 1 On  December  31, 1904,  we  had  at  risk  $15,087,224,  deposits 
$528,  582.55  (which  latter  less  5 per  cent  practically  our  only 
liabilities).  Our  assets  were  $5,131,210,  and  we  had  a surplus 
therefore  of  over  4*/2  millions.  Our  losses  incurred  during  the 
year  were  $20,127,  while  we  paid  as  dividend  in  distribution  of 
our  net  income  money  to  members,  double  that.  During  the 
year,  we  took  $646,825  new  risks  for  which  we  received  $27,064 


deposit. 

December  30,  1905,  the  assets  were $ 5,364,109.42 

Insurance  $ 15,294,690.66 


A ten  per  cent  cash  dividend  was  declared,  making  110  per 
cent  since  1845. 

There  is  absolutely  no  assessment  liability. 

The  present  secretary  of  the  Contributionship  is  J.  Somers 
Smith,  Jr.,  to  whom  the  Manual  Committee  are  indebted  for  the 
above  information  and  for  many  other  courtesies. 


CHAPTER  XXIV. 

MISCELLANEOUS  MATTERS. 

CO-INSURANCE. 

Some  policies  are  so  worded  that  they  make  the  companies 
responsible  for  all  damages  up  to  their  face.  Under  such  policies, 
if  a house  is  insured  for  $1,000,  the  company  will  pay  a partial 
loss  in  full  up  to  $1,000.  Other  policies  agree  to  pay  only  three- 
fourths  or  some  other  part  of  the  value  of  the  property  and  the 
same  proportion  of  a partial  loss.  In  this  case,  if  a house  is 
insured  for  $1,000,  and  is  appraised  at  $1,000,  the  company 
would  pay,  in  case  of  loss,  $750,  in  case  of  partial  loss,  say,  of 
$400,  they  would  pay  $300. 

Again,  there  are  companies  which  insist  that  the  insured 
shall  carry  a certain  amount  of  insurance,  say  seventy-five  per 
cent,  in  companies  which  shall  be  jointly  responsible  for  all 
losses.  Failing  to  do  so,  in  case  of  loss  he  only  gets  an  amount 
bearing  the  same  proportion  to  the  total  loss  that  the  insurance 
he  carried  does  to  the  amount  of  the  policy. 

Policies  are  frequently  written  “ concurrent  insur- 

ance permitted.’ ’ In  the  event  of  concurrent  insurance  all  the 
companies  should  be  notified  of  whatever  insurance  is  placed 
upon  the  property. 

In  re-insurance,  there  is  but  one  company  and  one  adjuster 
to  deal  with  and  if  the  company  is  sound  there  is  no  trouble. 
But  the  insured  does  not  see  the  re-insurance  policy  and  does 
not  know  its  provisions,  and  if  the  first  company  fails  he  may 
find  himself  unprotected.  This  matter  is  now  before  the  courts, 
and  the  legislatures  will  probably  establish  a rule. 

Insurers  may  complicate  matters  by  their  own  carelessness 
or  ignorance.  A man  may  insure  his  property  in  good  faith 

440— 


OF  MUTUAL  INSURANCE, 


441 


for  a reasonable  amount.  Some  one  may  persuade  him  that  his 
company  is  unsound  or  he  may  forget  when  his  policy  expires 
and  effect  another  insurance  and  may  have  two  or  three  policies 
in  force  at  the  same  time.  Such  a complication  would  in  all 
probability  get  into  court  and  the  verdict  would  probably  be 
that  the  policy  holder  would  lose  his  case. 

The  policy  holder  should  always  carry  a portion  of  the 
risk.  Good  companies  instruct  their  agents  to  limit  their  policies 
to  two-thirds  or  three-fourths  of  the  actual  value  of  the  prop- 
erty and  to  take  a premium  only  on  the  sum  they  intend  to  pay 
in  case  of  loss.  It  is  argued  that  when  one  of  these  clauses  is 
inserted  in  a policy  that  the  temptation  to  over  insure  will  be 
removed  and  that  the  policy  holder  will  place  a fair  value  on  his 
property. 

As  a weak  point  of  the  valued  policy  law  is  that  it  places  no 
restraint  upon  the  policy  holder  who  over  insured,  so  the  weak 
point  of  these  clauses  is  that  they  do  not  reach  the  companies. 
Nor  does  either  one  reach  the  agent  without  whose  connivance 
no  over  insurance  can  be  effected. 

The  underlying  thought  of  the  anti  co-insurance  laws  is  the 
same  as  in  the  case  of  the  valued  policy  laws,  an  endeavor  to 
compel  the  companies  to  stand  up  to  their  bargains  and  thus 
compel  fair  dealings  by  making  it  to  the  interest  of  the  com- 
panies to  avoid  over  insurance. 

REINSURANCE. 

Whenever  a policy  holder  insists  on  dealing  with  only  one 
company,  as  many  do,  if  the  risk  is  a large  one,  the  company 
must  either  decline  it  and  lose  the  business,  or  reduce  its  liabil- 
ity by  re-insuring  so  much  of  it  as  is  above  the  limit  which  the 
company  has  fixed  for  itself. 

There  is  no  reason  why  insurers  should  not  prefer  to  deal 
on  that  plan.  In  cases  of  loss,  settlement  is  much  easier,  there 
is  only  one  policy,  only  one  contract  with  one  set  of  provisions,, 
instead  of  several,  each  with  its  own  set  of  technicalities,  not 
only  different,  but  sometimes  contradictory,  and  most  important 
of  all,  there  is  only  one  adjustment. 


442 


A HAND  BOOK 


Now  is  there  any  reason  why  Mutuals  should  refuse  such 
risks.  They  are  profitable.  The  hazard  is  generally  low  for 
such  business,  it  usually  comes  from  careful  men,  and  when 
such  a customer  is  once  secured  he  becomes  a source  of  profit. 

Another  reason  for  re-insurance  is  that  if  the  policy  holder 
divides  his  own  insurance  he  may  put  some  of  it  in  unfriendly 
stock  companies,  and  thereby  cause  no  end  of  trouble.  But  if 
the  Mutuals  re-insure  in  other  Mutuals  all  trouble  of  this  kind 
will  be  avoided. 

Two  cautions  are  pertinent.  The  first  is  to  see  that  the 
policy  expresses  exactly  what  i®  to  be  done.  If  the  company 
merely  insures  a certain  amount  with  the  understanding  that 
the  policy  holder  places  the  rest  where  he  chooses  the  policy 

should  be  written  for  that  amount,  and  the  words  “ 

concurrent  insurance  permitted,”  or  others  to  the  same  effect 
should  be  inserted. 

The  second  is  that  in  case  of  re-insurance  the  policy  should 
not  be  in  force  till  the  re-insurance  took  effect.  An  illustration 
will  show  the  reason  for  this.  A Mutual  takes  a risk  of  $25,000 
expecting  to  re-insure  $23,000  in  twelve  other  companies,  but 
before  it  is  done  the  property  burns.  The  whole  loss  falls  on 
the  Mutual.  This  difficulty  is  easily  avoided. 

SUBROGATION. 

Subrogation,  in  law,  is  the  substitution  of  one  person  in 
place  of  another,  giving  him  the  right  of  the  person  whose  place 
he  takes.  The  subject  is  of  importance  to  insurance  companies 
as  their  policies  are  often  assigned  as  security  for  debts  and 
especially  for  mortgage  loans.  This  requires  the  consent  of  the 
company  and  the  fact  of  the  assignment  as  well  as  the  consent 
of  the  company  must  be  endorsed  on  the  policy.  A common 

form  is  “Loss,  if  any  under  this  policy,  payable  to as 

their  interests  may  appear.”  Under  this,  or  any  similar  con- 
tract, in  case  of  loss  by  fire,  the  insurance  money  would  be  paid 
to  the  mortgagee  or  the  creditor  so  far  as  covered  by  his  claim, 
the  balance,  if  any,  going  to  the  debtor. 


OF  MUTUAL  INSURANCE 


443 


Many  loan  companies  use  special  forms,  containing  several 
provisions  which  should  be  submitted  to  an  attorney. 

The  right  of  subrogation  exists  by  statutory  enactment,  in 
many  states,  it  being  provided  that  where  the  insurance  com- 
pany claims  that  the  fire  was  caused  by  act  or  neglect  of  any 
person  or  corporation  on  payment  of  such  loss  the  insured 
shall  assign  to  the  company  his  right  to  recovery  from  said  per- 
son or  corporation  and  this  whether  stipulated  in  the  policy  or 
not. 

Generally,  when  an  insurance  company  pays  a loss  caused 
by  negligence  of  a railroad  company,  or  other  common  carrier, 
it  becomes  subrogated  to  the  rights  of  the  insured  against  the 
railroad  company. 

The  Western  Underwriter  has  the  following: 

“The  railway  subrogation  waiver  clause  creates  an  endless 
amount  of  correspondence.  There  is  only  one  form  permissible, 
yet  agents  are  constantly  attempting  to  improve  upon  it.  Stick 
to  the  text  which  is  as  follows : ‘ Notice  is  hereby  acknowledged 
that  the  assured  has  waived  the  right  of  recovery  from  the .... 

Railroad  Company,  for  any  damage  by  fire  occuring  to 

the  property  described  herein,  or  affected  thereby. 1 ” 

The  whole  subject  is  too  difficult  and  too  complex  for  a 
work  of  this  kind.  Should  a case  arise  the  services  of  a good 
attorney  should  be  secured. 

LIABILITIES  OF  MEMBERS  OF  MUTUALS. 

This  question  has  been  settled  years  ago  but  circulars  are 
still  issued  stating  that  each  member  of  a Mutual  is  liable  for 
all  he  is  worth  in  case  of  loss,  if  a Company  fails  to  pay.  They 
make  this  assertion  without  any  regard  to  any  state  law,  or 
stipulation  or  condition  in  the  policy. 

The  circulars  alluded  to  bear  neither  date,  signature  or 
even  imprint,  a circumstance  which  is  sufficient  proof  that  they 
were  not  issued  with  honest  intents.  They  may  be  dismissed 
without  further  notice. 

While  the  laws  in  most  of  the  several  states  differ  very 
greatly,  the  statutes  concerning  insurance  companies,  or  which 


444 


A HAND  BOOK 


affect  their  business,  generally  provide  for  three  classes.  First 
is  the  old  line  stock  company,  in  which  the  whole  affair  is  owned 
by  stock  holders.  Of  course  the  laws  of  the  state  granting  the 
charter  control  in  each  particular  case. 

The  second  class  corresponds  very  nearly  with  the  ordinary 
co-partnership.  Many  of  the  smaller  mutuals  the  township  and 
especially  the  fraternal  and  denominational  mutuals  are  so 
organized  and  purposely.  They  deal  only  with  those  they  know 
personally,  take  no  extra  hazardous  or  disporportionately  large 
risks  and  pay  all  losses  in  full. 

There  is  still  a third  class  which,  in  most  states  comes  under 
a special  law.  The  liability  is  limited  to  the  face  of  the  note  by 
statutory  enactment.  Massachusetts  provides  two  methods, 
cash  payments,  with  a liability  of  an  equal  additional  amount, 
the  total  liability  being  “ plainly  and  legibly  stated  on  the  back 
of  the  policy”  and  deposit  notes  which  constitute  the  entire 
liability  of  their  members.  New  Hampshire,  Connecticut  and 
others  limit  the  liability  to  the  face  of  the  premium  note.  The 
same  is  true  in  Kansas.  These  laws  have  been  in  force  many 
years. 

There  are  the  Mutuals  which  carry  no  funds,  take  no  notes 
and  assess  to  pay  losses  and  expenses.  These  generally  stipu- 
late that  losses  shall  be  paid  in  full.  Provision  is  made  against 
burdensome  assessment  by  providing  that  such  companies  shall 
have  a certain  number  of  policy  holders  and  a certain  amount  at 
risk  before  they  can  begin  business,  and  this  is  large  enough  to 
do  away  with  the  danger  of  a burdensome  assessment.  If  they 
should  fall  below  this  at  any  time  they  would  be  compelled  to 
quit  business,  till  they  had  secured  enough  more  policy  holders 
and  risks  to  bring  them  up  to  the  standard. 

There  is  still  another  class,  those  mutuals  which  are  work- 
ing without  charter,  and  practically  without  legal  organization. 
They  can  neither  sue  nor  be  sued.  Among  these  will  be  found 
church  insurance  companies,  fraternals,  etc.  These  companies 
work  very  cheaply  and  depend  upon  honor  for  the  enforcement 
of  contracts,  having  no  legal  liability  whatever.  To  do  them 
justice,  it  must  be  said  they  are  doing  excellent  work. 


OF  MUTUAL  INSURANCE 


445 


There  is  some  of  the  same  spirit  in  all  mutuals.  It  is  a 
matter  of  honor,  to  do  a safe  business,  and  to  meet  their  obliga- 
tions, and  they  do  so  quite  as  well  as  any  other  business  organi- 
zations. 

THE  SAFETY  LIMIT. 

How  large  a policy  may  a Mutual  issue? 

This  is  a question  frequently  asked.  Thus  far  there  has 
been  no  answer  of  general  application.  Several  states  have 
statutory  provisions;  they  differ  widely.  Maine  prohibits  in 
any  one  risk  “an  amount  exceeding  twenty-five  per  cent  of  its 
gross  assets,  including  the  amount  due  at  any  one  time  on  its 
premium  notes.”  Massachusetts  and  New  Jersey  limit  the 
amount  to  one  tenth  of  the  net  assets;  Connecticut  to  one  tenth 
of  paid  up  capital  and  surplus;  Idaho,  Wyoming  and  Indiana 
to  ten  per  cent  of  paid  up  capital;  Colorado  to  five  per  cent  of 
paid  up  capital;  Washington  limits  the  risk  to  $1,000  on  each 
$750,000  insured.  Other  states  have  different  provisions  and 
many  ignore  the  matter.  These  enactments  are  evidently  the 
wildest  guess  work  with  no  scientific  basis  whatever.  All  state 
enactments  are  apt  to  err  on  the  danger  side.  They  get  the 
bank  reserve  too  small  and  the  policy  limit  too  large.  There  is 
a rule  current  among  insurers  that  the  largest  risk  in  a single 
policy  should  never  exceed  ten  per  cent  of  the  annual  premium 
receipts  for  one  year.  This  is  much  smaller  than  the  lowest 
statutory  limit  quoted,  except  in  Colorado,  but  is  still  higher 
than  the  usage  of  insurance  companies  in  general. 

There  seems  to  be  no  definite  rule,  at  least  none  can  be 
discovered  from  reports.  Many  answer  the  question  by  saying 
“no  limit,”  others  give  figures  evidently  taken  from  the  by- 
laws but  an  inspection  of  their  assessments  shows  that  they 
have  never  had  any  losses  of  such  magnitude,  and  their  average 
of  risks  is  so  far  below  it  as  to  preclude  the  idea  of  such  large 
policies.  It  is  more  probable  that  the  officials  in  taking  risks 
keep  in  view,  the  size  of  the  assessment  in  case  of  loss.  In 
Wisconsin  for  example,  where  the  Mutuals  have  been  wonder- 
fully successful,  the  limits  of  risks  are  large.  But  very  many 
of  the  Mutuals  made  no  assessment  at  all  last  year  and  scarcely 


446 


A HAND  BOOK 


any  made  a levy  which  would  have  paid  a large  loss.  It  is  evi- 
dent that  there  is  no  unity  of  opinion  on  the  matter. 

DUTIES  OF  THE  STATE. 

All  chartered  bodies  are  creatures  of  the  State,  and  though 
modern  philosophers  and  interested  parties  may  protest  most 
vigorously,  it  will  remain  true  that  in  the  universe  and  in  the 
state  the  creator  is  greater  than  the  creature.  It  may  be  said 
in  addition  that  no  chartered  company  can  hold  a vested  right 
against  public  policy.  As  a legitimate  deduction  from  this,  it 
may  be  stated  that  all  corporations  are  subject  to  the  state 
laws  and  every  kind  of  chartered  insurance  company  is  included. 
Without  entering  into  a discussion  of  this  much  debated  matter, 
it  may  be  said  in  the  case  of  insurance  companies  the  state 
should  go  far  enough  to  protect  the  individual  insurer  against 
fraud  or  mismanagement,  to  compel  the  companies  either  to 
prove  their  ability  to  fulfil  their  contracts  or  to  close  up  busi- 
ness while  it  is  possible  to  do  so,  without  material  loss  to  the 
policy  holders. 

To  faithfully  perform  this  duty  the  state  should  periodi- 
cally make  complete  and  thorough  examinations  of  all  insur- 
ance companies.  The  facts  to  be  established  are  that  the  com- 
pany is  able  to  meet  its  engagements,  is  fairly  and  honorably 
conducted  and  is  fully  complying  with  the  laws  of  the  State. 
The  cost  of  this  to  the  policy  holder  is  trifling. 

There  will  be  no  concord  of  opinion  as  to  what  legislation 
is  advisable.  The  varying  conditions  of  the  several  states  pre- 
clude any  general  laws,  applicable  alike  in  every  state.  Statutes 
providing  for  good  management,  security  and  fair  dealing  exist 
is  nearly  all  the  states. 

As  a general  rule,  after  safety  and  good  management  have 
been  provided  for,  the  less  meddling  by  the  state,  the  better. 
Details  often  depend  on  local  conditions  and  should  be  left  to 
the  local  companies. 

TAXATION  OF  MUTUALS. 

Mutual  insurance  companies  are  not  organized  for  profit 
and  therefore  should  not  be  compelled  to  pay  a percentage  on 


OF  MUTUAL  INSURANCE 


447 


their  receipts.  Such  taxes  are  not  levied  upon  property  but 
upon  income,  and  are,  in  their  nature,  licenses  to  do  business, 
and  are  usually  intended  to  reach  foreign  corporations  and  joint 
stock  companies. 

An  inquiry  concerning  this  matter  made  by  the  committee 
resulted  in  developing  the  fact  that  there  is  no  uniformity  of 
procedure.  Some  companies  reported  that  they  never  had  paid 
a tax,  others  complained  that  they  were  compelled  to  pay  too 
heavily.  Generally  the  Mutuals  which  assessed  after  a loss  were 
exempt  from  taxation.  They  had  nothing  to  tax.  Others  which 
made  advance  assessments  paid  on  what  they  happened  to 
have  on  hand,  in  other  words  they  paid  on  the  property  in  their 
possession.  There  is  no  general  rule. 

LEGAL. 

In  discussing  legal  questions  it  has  not  been  the  intention 
of  the  compilers  of  this  Manual  to  make  it  a law  book,  or  to 
supersede  attorneys  and  courts,  but  only  to  give  such  general 
information  as  is  usually  current  among  business  men,  leaving 
particular  eases  and  technical  points  to  the  attorneys  of  the  com- 
panies. As  a ship  in  mid  ocean,  managed  by  her  own  captain 
who  only  knows  enough  of  hidden  dangers  to  keep  at  a dis- 
tance, pursues  her  course  in  safety,  but  when  she  comes  to  in- 
tricate channels  and  narrow  passages,  secures  the  services  of 
an  expert  pilot,  so,  in  general,  these  directions  will  answer,  but 
when  special  cases  arise  and  complicated  questions  are  to  be 
decided,  the  services  of  an  attorney  will  be  needed. 

The  man  who  always  “stands  on  his  rights’ ’ is  generally 
in  trouble  with  his  neighbors,  and  so  the  official  or  clerk  who  is 
always  consulting  law  books  and  attorneys  to  see  how  little  he 
is  obliged  to  do  by  the  statutes  in  the  case  made  and  provided, is 
one  whose  services  should  be  dispensed  with  at  once.  The 
average  man  does  not  wish  to  be  annoyed  with  technicalities,  and 
legal  discussions.  Courts  and  juries  are  disregarding  them 
more  and  more.  In  fact  adhering  to  technicalities  is  looked 
upon  as  evidence  of  intention  to  take  advantage,  while  doing 
all  that  can  be  done,  even  though  one  doe&  more  than  is  called 
for,  is  evidence  of  good  faith  and  goes  a long  way  with  a jury. 
Insurance  officers  should  act  upon  this  principle  and  in  cases 
of  doubt,  always  take  the  safe  side. 


CHAPTER  XXV. 

LAWS — COURT  DECISIONS. 


IOWA  DECISIONS-Relating  to  Co-operative  Mutual  Insurance. 

The  Supreme  Court  of  Iowa  has  held  that  where  the  articles 
of  incorporation  show  that  an  insurance  company  is  organized 
to  do  a mutual  insurance  business  and  to  insure  only  the  prop- 
erty of  its  members,  that  the  company  could  not  insure  the 
property  of  any  one  not  a member  and  the  issuance  of  policies 
of  insurance  on  the  stock  plan  was  invalid.  Corey  vs.  Sherman, 
96  Iowa,  114. 

A mutual  fire  insurance  company  cannot  issue  a policy  to 
one  not  a member,  nor  for  a stated  and  definite  amount  of  insur- 
ance, nor  for  a stipulated  premium. 

One  who  insures  his  property  in  a mutual  company  in  a 
stated  amount  for  a specified  premium,  does  not  become  a mem- 
ber and  acquires  no  rights. 

The  creation  of  a guaranty  fund  held  not  to  deprive  the  cor- 
poration of  the  character  of  a mutual  company. 

Where  the  statute  provides  that  a copy  of  the  application 
shall  be  printed  or  written  upon  the  insurance  policy,  such  re- 
quirements are  applicable  to  mutual  companies. 

Although  in  general,  a money  judgment  cannot  be  rendered 
against  an  assessment  company,  yet,  if  the  company  has  issued 
a policy  in  which  it  agrees  to  pay  a fixed  sum  in  case  of  loss, 
such  action  may  be  maintained.  Byrnes  vs.  American  Mutual 
Fire  Insurance  Company,  114,  Iowa,  738. 

Where  it  is  not  required  by  the  articles  and  by-laws,  notice 
of  assessment  need  not  be  given  before  the  assessment  is  made. 
Corey  vs.  Sherman,  96  Iowa,  114. 

The  members  of  mutual  insurance  companies  are  presumed 
to  have  knowledge  of  the  articles  of  incorporation  and  by-laws. 
Corey  vs.  Sherman,  96  Iowa,  114. 

Even  in  purely  mutual  benefit  associations,  as  between  the 
assured  and  the  company,  the  latter  stands  in  something  of  an 
independent  attitude,  and  may  be  held  bound,  sometimes  with- 
out such  intention.  This  intent  or  purpose  will  not  always  be 
held  as  a matter  of  law,  to  be  known  to  the  insured,  because  of 
his  membership. 

Matthes  vs.  Imperial  Accident  Association,  110  Iowa,  122. 

448— 


R.  J.  YOUNG,  OELWEIN,  IOWA. 

Mr.  Young  is  one  of  the  veterans.  He  has  been  an  active 
and  efficient  worker  in  Mutual  Insurance  lines  for  more  than 
thirty  years.  He  served  as  director,  treasurer  and  secretary 
of  the  Fayette  County  Mutual,  acting  in  the  latter  capacity  for 
nine  years.  He  is  also  a director  of  the  Farmers’  Mutual  and 
Grain  Growers  Hail  Insurance  Company  and  has  served  on  the 
executive  board  for  nine  years.  He  assisted  in  organizing  the 
Town  Dwelling  Mutual  Fire  Insurance  Company  of  Des  Moines, 
Iowa,  thirteen  years  ago,  still  being  on  the  directory.  He  has 
been  a member  of  the  Iowa  Mutual  Tornado  Insurance  Company 
since  its  organization. 


PETER  F.  ZIMMER,  LINCOLN,  NEBRASKA. 

Mr.  Zimmer,  a native  of  Michigan,  has  devoted  all  his  life  to 
insurance  of  different  classes  in  the  States  of  Nebraska.  Colo- 
rado, Minnesota  and  the  Dakotas.  In  1899  his  brother  and  himself 
organized  the  United  Hail  Insurance  Association,  of  which  they 
are  still  the  managers.  For  four  years  they  fought  the  wild  cat 
companies  of  Nebraska,  finally  securing  the  law  requiring  a 
$50,000  guarantee  on  the  part  of  the  officers  of  hail  insurance 
companies  for  the  faithful  accounting  of  the  funds  of  such  com- 
panies. Their  company  is  the  only  hail  company  in  the  state 
which  has  made  a continuous  success  of  the  business  from  the 
very  first. 


OF  MUTUAL  INSURANCE 


449 


The  mutual  benefit  life  association  may  waive  the  provis- 
ions of  its  policies  as  to  medical  examination. 

Watts  vs.  Equitable  Mutual  Life  Association,  111  Iowa,  90. 

While  each  policy  holder  is  a member  of  a mutual  company 
during  the  life  of  his  policy,  he  does  not  become  a member  until 
the  policy  is  issued  and  in  the  negotiations  for  it,  he  stands  in 
the  relation  of  a stranger  to  the  company. 

Even  as  to  renewal  of  a policy,  already  in  existence,  the 
parties  are  dealing  at  arms  length. 

Parno  vs.  The  Iowa  Merchant’s  Mutual  Insurance  Company, 
114  Iowa,  132. 

The  creation  of  an  indebtedness  incident  to  the  organiza- 
tion and  the  conduct  of  the  business  of  a mutual  association, 
may  be  authorized  by  the  articles  of  an  association,  and  the  re- 
payment of  such  indebtedness  may  be  enforced. 

Ainley  vs.  American  Mutual  F?re  Insurance  Company,  113  Iowa, 
709. 

While  members  of  a mutual  company  may  be  bound  by  by- 
laws adopted  after  they  became  members,  nevertheless,  the 
terms  of  a policy  of  insurance  will  be  presumed  to  be  covered 
by  the  by-laws  in  force  when  it  was  issued,  and  not  to  be  affected 
by  those  subsequently  adopted. 

Farmer’s  Mutual  Hail  Association  vs.  Slattery,  115  Iowa,  410. 

THE  IOWA  ANTI-COMPACT  LAW. 

This  law  reads  as  follows: 

Section  1754.  “It  shall  be  unlawful  for  two  or  more  fire 
insurance  companies  doing  business  in  this  state,  or  for  the  of- 
ficers, agents  or  employees  of  such  companies,  to  make  or  enter 
into  any  combination  or  agreement  relating  to  the  rates  to  be 
charged  for  insurance,  the  amount  of  commission  to  be  allowed 
agents  for  procuring  the  same,  or  the  manner  of  transacting  the 
fire  insurance  business  within  this  state ; and  any  such  company, 
officer  or  employee  violating  this  provision  shall  be  guilty  of  a 
misdemeanor  and  a fine  is  imposed  for  each  offense.” 

It  has  been  held  constitutional  by  the  United  States  Su- 
preme Court. 

MINNESOTA  LAWS  AND  DECISIONS. 

The  following  extracts  from  the  laws  of  Minnesota  and 
from  the  court  decisions  will  be  of  general  interest. 

“In  a Mutual  fire  insurance  company,  organized  under 
Laws  1881,  c 91,  the  capital  is  made  up  of  cash  premiums  and 
premium  notes.” 

Taylor  vs.  North  Star  Mut.  Ins.  Co.,  46  Minn.,  198  N.  W.  772. 

“One  insuring  in  a Mutual  Company  becomes  a member 
28 


450 


A HAND  BOOK 


thereof.’ ’ Taylor  vs.  North  Star  Mut.  Ins.  Co.,  46  Minn.,  198 
N.  W.  772. 

“General  Laws  1881,  c.  180,  authorizes  certain  mutual  com- 
panies which  have  attained  a certain  capital  to  assume  to  a 
limited  amount  risks  ‘on  the  all  cash  plan,  and  issue  policies,’ 
etc.  Held,  that  the  holder  of  an  all  cash  policy  did  not  thereby 
become  a member  of  the  company.”  In  re  Minneapolis  Mut. 
Tire  Ins.  Co.,  49  Minn.  291,  51  N.  W.  921. 

Non-participating  policy  holders  are  customers,  not  mem- 
bers. 

“Gen.  Laws  1881,  c.  91,  authorizing  the  formation  of  Mil- 
lers and  Manufacturers’  mutual  insurance  companies,  author- 
ized persons  engaged  in  such  business  to  form  themselves  into 
a corporation  for  the  purpose  of  insuring  ‘upon  the  plan  of 
Mutual  Insurance,’  mills,  etc.  Section  12  provided  that  every 
person  insured  by  the  corporation  should  pay  at  the  time  of 
receiving  his  policy  such  sum  in  money,  and  give  his  premium 
note  for  such  further  sum,  as  might  be  required,  and  that  all 
persons  effecting  insurance  in  such  corporation  should  thereby 
become  members  thereof,  and  should  be  bound  to  pay  losses 
and  expenses  in  proportion  to  the  amount  of  their  premium 
notes. 

Gen.  Laws  1885,  c.  180,  provided  that  whenever  the 
capital  of  any  company  organized  under  the  act  of  1881  should 
amount  to  a certain  sum,  of  which  not  less  than  a certain 
amount  should  be  actual  funds,  such  company  might  “assume 
risks  on  the  all  cash  plan  and  issue  policies  against  loss  or  dam- 
age by  fire  or  lightning  on  any  property  real  or  personal,  to  an 
amount  not  exceeding  5 per  centum  of  its  capital  stock.  ’ ’ Held, 
that  the  law  of  1885  authorized  such  companies  to  enter  into 
contracts  of  simple  “all  cash”  (not  mutual)  insurance  to  the 
limited  extent  specified,  and  a policy  in  the  ordinary  form  of 
such  contracts  is  a contract  of  simple  (not  mutual)  insurance. 
In  re  Minneapolis  Mut.  Fire  Ins.  Co.,  49  Minn.  291,  51  N.  W. 
921,  Powell  vs.  Wyman,  Id. 

A Mutual  insurance  company,  organized  under  Gen.  St. 
1878  c.  34,  articles  338-347,  authorizing  it  to  insure  “detached 
dwellings  and  their  contents,  and  farm  buildings  and  their  con- 
tents, and  live  stock  and  hay  and  grain  in  bin  or  stack,”  has 
no  power  to  insure  growing  grain  of  its  members  against  loss 
by  hail.  Delaware  Farmers’  Mut.  Fire  Ins.  Co.  vs.  Wagner,  56 
Minn.  240,  57  N.  W.  656;  Same  vs.  Knuppel,  56  Minn.  243,  57 
N.  W.  656. 


OF  MUTUAL  INSURANCE 


451 


It  is  a good  defense  to  a note  given  in  payment  of  the  insur- 
ance premium  that  the  company  had  no  power  to  issue  the  policy 
for  which  such  note  was  given.  Rochester  Ins.  Co.  vs.  Martin, 
13  Minn.  59,  (Gil.  54). 

In  a Mutual  fire  insurance  company  organized  under  Laws 
1881,  c.  91,  premium  notes,  together  with  cash  premiums,  con- 
stitute the  capital,  and  are  assessable  in  proportion  to  the 
amount  of  losses  sustained.  Taylor  vs.  North  Star  Mut.  Ins. 
Co.,  46  Minn.  198,  48  N.  W.  772. 

A member  of  a mutual  insurance  company  cannot  be  asses- 
sed for  losses  sustained  before  he  became  a member  of  the  Com- 
pany. Swing  vs.  North  Star  Mut.  Ins.  Co.,  62  Minn.  169,  64  N. 
W.  97. 

Where  an  assessment  on  the  premium  note  of  a member  of 
a mutual  insurance  company  is  rendered  of  a larger  amount  as 
to  him,  through  the  knowing  omission  of  other  member  liable 
to  assessment,  it  is  voidable.  Swing  vs.  H.  C.  Akeley  Lumber 
Co.,  62  Minn.  169,  64  N.  W.  97. 

Rev.  St.  Ohio,  Sec.  3650,  providing  that  in  making  the 
assessment  on  members  of  a Mutual  insurance  company,  the 
board  of  directors  shall  determine  the  sum  to  be  paid  by  the 
several  members,  and  publish  the  same  in  such  manner  as  they 
choose  or  as  the  by-laws  prescribe,  and  that  the  amount  so  as- 
sessed shall  be  paid  within  30  days  next  after  publication  of 
such  notice,  contemplates  a publication  of  the  whole  assessment 
list,  and  not  a mere  notification  of  a member  by  mail  of  the 
amount  of  his  own  assessment.  Swing  vs.  Wurst,  67  Minn.  198, 
79  N.  W.  94. 

A misrepresentation  or  concealment,  to  effect  the  policy, 
must  be  material  to  the  risk.  Aetna  Ins.  Co.  vs.  Grube,  6 Minn. 
82,  (Gil.  34). 

Where  a policy  of  fire  insurance  provides  that  the  same 
shall  become  void  in  case  the  insured  mortgages  the  same  with- 
out notifying  the  company,  a mortgage  of  a portion  only,  with- 
out giving  the  prescribed  notice,  will  vitiate  the  whole  policy. 
Plath  vs.  Minnesota  Farmers’  Mut.  Fire  Ass’n.,  23  Minn.  479, 
23  Am.  Rep. 

Where  an  insurance  agent,  authorized  to  procure  and  for- 
ward applications,  makes  out  an  application  incorrectly  after 
having  received  correct  information,  the  agent  does  not  become 
the  agent  of  the  assured  because  of  a stipulation  in  the  policy 
subsequently  issued  that  the  acts  of  the  agent  in  making  out 
the  application  shall  be  deemed  the  acts  of  the  insured.  Kansel 
vs.  Minnesota  Farmers’  Mut.  Fire  Ins.  Ass’n.,  31  Minn.  17,  16 
N.  W.  430. 


452 


A HAND  BOOK 


An  insurance  company  is  responsible  for  its  agents  mistakes 
in  wrongly  stating  facts  correctly  given  him  by  the  assured. 
Kansel  vs.  Minn.  Farmers’  Mut.  Fire  Ins.  Ass’n.,  31  Minn.  17, 
16  N.  W.  430. 

A policy  of  insurance  was  issued  on  certain  farm  property, 
including  stables  and  ‘ ‘ hay  therein  or  in  stack, ’ ’ and  designated 
as  being  in  the  possession  of  the  assured,  who  was  referred  to 
as  residing  on  a farm  particularly  described.  The  assured  owned 
some  hay  in  stack,  not  on  the  land  described,  and  two  miles 
distant  from  his  residence.  The  agent  of  the  company  who 
effected  the  insurance,  and  made  out  the  description  of  the  prop- 
erty inserted  in  the  policy,  knew  of  this  hay,  and,  as  between 
him  and  the  assured,  it  was  understood  that  it  was  to  be  covered 
by  the  policy.  Held,  that  such  hay  was  covered  by  the  policy, 
although  the  company’s  articles  of  incorporation  declared  that 
property  under  the  immediate  control  of  the  assured,  only, 
should  be  insured.  Soli  vs.  Farmers’  Mut.  Ins.  Co.,  51  Minn. 
24,  52  N.  W.  979;  Berhstron  vs.  Same,  51  Minn.  29,  52  N.  W. 
980. 

The  acceptance  of  premiums  and  assessments  on  a policy 
after  a loss  will  not  bind  the  insurer,  as  a waiver  of  non-pay- 
ment of  the  premium  or  assessment,  if  the  insurer  was  ignorant 
of  the  fact  of  loss.  McMartin  vs.  Continental  Ins.  Co.,  41  Minn. 
198,  42  N.  W.  934. 

A valued  policy  is  one  in  which  the  value  of  the  property 
insured  is  fixed  and  agreed  upon  by  both  parties  to  the  contract, 
and,  in  case  of  total  loss,  it  it  not  necessary  that  proof  should 
be  made  of  the  market  value  at  the  time  and  place  of  ship- 
ment. Williams  vs.  Continental  Ins.  Co.,  24  F.  767. 

Failure  to  give  notice  of  loss  for  nearly  60  days  after  the 
fire,  constituted,  as  a matter  of  law,  a breach  of  condition  re- 
quiring the  giving  of  “immediate  notice.”  Armentrout  vs. 
Girard  Fire  & Marine  Ins.  Co.,  63  Minn.  305,  65  N.  W.  635,  30 
L.  R.  A.  346. 

Where  an  insurance  company,  upon  information  that  prop- 
erty covered  by  one  of  its  policies  had  been  damaged  by  fire, 
makes  investigation  into  the  cause  of  the  fire,  obtaining  infor- 
mation sufficient  to  determine  its  liability,  expressly  recognizes 
such  liability,  and  prepares  proof  of  loss  from  the  information 
thus  obtained,  which  it  presents  to  the  insured  for  signature, 
but  which  he  refuses  to  sign  because  of  the  stipulation  of  settle- 
ment therein  contained,  the  failure  on  the  part  of  the  insured 
to  make  and  serve  formal  proof  of  loss  is  waived.  Larkin  vs. 
Glens  Falls  Ins.  Co.,  80  Minn.  527,  82  N.  W.  409. 

A provision  for  arbitration  is  waived  by  the  company’s 
denying  liability  after  loss,  and  telling  insured  that  he  will 


OF  MUTUAL  INSURANCE 


453 


have  to  resort  to  the  courts.  Hamberg  vs.  St.  Paul  Fire  & 
Marine  Ins.  Co.,  68  Minn.  335,  71  N.  W.  388. 

The  description  of  the  property  insured  was  a two  story 
frame,  brick  veneered  building  and  additions  attached,  includ- 
ing the  foundation  and  all  permanent  fixtures  situated  therein. 
The  building  and  additions  were  totally  destroyed  by  fire.  Held, 
that  it  being  conceded  that  the  loss  by  fire  exclusive  of  the 
foundation  included  in  the  policy,  was  greater  than  the  amount 
for  which  the  property  was  insured,  it  was  not  error  for  the 
trial  court  to  direct  a verdict  for  the  plaintiff.  Ohage  vs.  Union. 
Ins.  Co.  of  Philadelphia,  85,  N.  W.  212. 

NEBRASKA  LAWS  AND  DECISIONS. 

BRIEF  OF  INSURANCE  DECISIONS  BY  HON  E.  M.  COFFIN. 

Mutual  Insurance  in  Nebraska  is  affected  by  the  following 
decisions : 

Refusal  of  Auditor  to  grant  certificate,  no  defense  is>  an 
action  for  assessment.  Burmood  vs.  Insurance  Co.,  42  Neb.,  598. 

Cannot  recover  for  loss  while  assessment  is  delinquent. 
Farmers  Mutual  vs.  Kinney,  64  Neb.,  808. 

Mutual  Hog  Co.  cannot  limit  assessment.  Morgan  vs.  Insur- 
ance Co.,  62  Neb.,  446.  This  applies  also  to  Fire  companies 
organized  under  1897  law. 

Mutual  Live  Stock  Association  held  to  be  an  Insurance 
Co.  State  vs.  Live  Stock  Ass’n.,  16  Neb.,  549. 

Valued  policy  law  valid  and  applies  to  mutual  insurance 
companies.  Farmers  Mutual  vs.  Cole,  93  N.  W.,  730. 

Act  allowing  Attorneys’  fee  valid  and  applies  to  Mutual 
Insurance  Companies.  Farmers  Mutual  vs.  Cole,  93  N.  W.,  730. 

Act  of  1891  for  organization  of  Farmers  Mutual  companies 
valid.  State  vs.  Moore,  48  Neb.,  870. 

Mutual  Company  organized  under  act  of  1891,  cannot  take 
notes  for  premium.  State  vs.  Moore,  48  Neb.,  870. 

That  building  was  burned  by  third  party  is  no  defense. 
Union  Insurance  Co.  vs.  McCullough,  96  N.  W.,  79. 

Policy  not  invalidated  by  change  of  tenants.  Union  Insur- 
ance Co.  vs.  McCullough,  96  N.  W.,  79. 

Application  signed  by  a husband  and  wife  on  wife’s  prop- 
erty does  not  effect  rights.  Union  Ins.  Co.  vs.  McCullough,  96 
N.  W.,  79. 

Agreement  in  application  to  be  bound  by  subsequently 
passed  by-laws  is  binding  on  member.  Hale  vs.  Western  Trav- 
elers Ass’n.,  96  N.  W.,  170;  Farmers  Mutual  vs.  Kinney,  64  Neb., 
808. 


454 


A HAND  BOOK 


If  company  has  actual  knowledge  of  loss,  it  waives  proof 
of  notice.  Western,  etc.,  Ass  hi.  vs.  Tomson,  103  N.  W.,  695. 

If  company  denies  liability,  it  waives  proof  of  notice.  West- 
ern, etc.,  Ass’n.  vs.  Tomson,  103  N.  W.,  695. 

Where  a blanket  policy  is  issued  and  only  part  of  property 
is  destroyed,  cannot  claim  total  loss.  Johnson  vs.  Phelps  Co. 
Mutual  Ins.  Co.,  102  N.  W.,  72. 

Misrepresentation  of  material  matters  in  application  voids 
policy.  Royal  Neighbors  vs.  Wallace,  102  N.  W.,  1020. 

Demanding  proof  after  knowledge  of  breach  waives  same. 
Fidelity  Mutuals  vs.  Murphy,  95  N.  W.,  702. 

Restrictions  on  agent’s  authority  in  policy  not  binding  on 
assured  as  to  acts  in  taking  application.  Fidelity  Mutual  vs. 
Lowe,  93  N.  W.,  749. 

Agent  of  mutual  company  in  taking  applications  stands  on 
same  basis  as  agent  of  stock  company.  Fidelity  Co.  vs.  Lowe, 

93  N.  W.,  749. 

Organic  act,  articles  of  incorporation,  by-laws,  application 
and  certificate,  constitute  the  contract  of  insurance.  Farmers 
Mutual  vs.  Kinney,  64  Neb.,  808. 

Liability  of  member  of  mutual  company  continuing  one. 
Morgan  vs.  Hog  Raisers  Ins.  Co.,  62  Neb.,  446. 

Assessment  not  invalid  because  Board  of  Directors  assisted 
in  making  assessment  although  secretary  is  authorized  to  make 
same.  Phelps  Co.  Farmers  Mut.  vs.  Johnson,  66  Neb.,  590. 

When  a policy  is  deemed  cancelled  at  request  of  insured. 
Farmers  Mut.  Ins.  Co.  vs.  Phoenix  Ins.  Co.,  65  Neb.,  14. 

Company  must  cancel  policy  at  request  of  insured.  State 
Ins.  Co.  vs.  Farmers  Mutual,  65  Neb.,  34. 

Cancellation  at  request  of  insured  takes  effect  from  time  of 
receipt  of  policy  by  Company.  Farmers  Mutual  vs.  Phoenix 
Ins.  Co.,  65  Neb.,  14. 

After  request  for  cancellation,  claim  for  unearned  premium 
may  be  assigned.  State  Ins.  Co.  vs.  Farmers  Mutual,  65  Neb., 
34. 

Method  of  computing  unearned  premium.  State  Ins.  Co. 
vs.  Farmers  Mutual,  65  Neb.,  34. 

Misrepresentations  to  void  a policy  must  be  untrue  and 
known  to  be  so  by  applicant.  Aetna  Ins.  Co.  vs.  Rehlaender, 

94  N.  W.,  129;  Royal  Neighbors  vs.  Wallace,  99  N.  W.,  256; 
Farmers  Mut.  vs.  Cole,  93  N.  W.,  730. 

Vacancy  does  not  of  itself  work  forfeiture  but  is  ground 
for  declaring  same.  Hunt  vs.  Ins.  Co.,  66  Neb.,  121. 

Conveyance  absolute  in  form  as  security  for  contingent  lia- 
bility, which  never  occurs,  does  not  forfeit  policy.  Henton  vs. 
Ins.  Co.,  95  N.  W.,  670. 


OF  MUTUAL  INSURANCE 


455 


Attempted  waiver  by  local  agent  in  violation  of  policy  not 
binding  on  company.  Hunt  vs.  Ins.  Co.,  66  Neb.,  121. 

Notice  to  local  agent  is  notice  to  company.  Hunt  vs.  Ins. 
Co.,  66  Neb.,  121. 

Act  of  agent  in  taking  application  binding  on  company. 
Fidelity  Mut.  vs.  Lowe,  93  N.  W.,  749. 

Waiver  of  forfeiture  need  not  be  in  writing.  Hartford 
Ins.  Co.  vs.  Landfare,  63  Neb.,  559. 

Secretary  may  waive  forfeiture.  Nebraska  Mercantile 
Mut.  vs.  Sasek,  64  Neb.,  17;  Johnston  vs.  Phelps  Co.  Mut.,  63 
Neb.,  21. 

When  only  part  of  insured  property  is  destroyed  while 
assessment  is  delinquent,  subsequent  acceptance  of  assessment 
is  not  a waiver  of  default.  Farmers  Mut.  vs.  Kinney,  64  Neb., 
808;  Johnston  vs.  Phelps  Co.  Mut.,  63  Neb.,  21. 

Loss  by  wind  on  single  corn  crib  not  covered  by  policy. 
Farmers  Mut.  vs.  Tighe,  91  N.  W.,  520. 

Where  proofs  are  waived,  interest  should  be  computed  from 
date  of  loss.  Hartford  Ins.  Co.  vs.  Landfare,  63  Neb.,  559. 

Where  action  may  be  brought  on  domestic  Ins.  Co.  Western 
etc.,  Association  vs.  Taylor,  62  Neb.,  783;  Grand  Lodge  vs. 
Bartes,  64  Neb.,  800. 

When  liability  is  denied,  action  may  be  brought  before 
sixty  days  has  expired.  Modern  Brotherhood  vs.  Cummings., 
94  N.  W.,  144;  Anders  vs.  Ins.  Co.,  62  Neb.,  585. 

Proofs  of  loss  are  admissible  in  evidence.  M.  W.  A.  vs. 
Kozak,  63  Neb.,  146. 

Foreign  Ins.  Co.,  without  certificate  of  Auditor  to  do  busi- 
ness in  Nebraska,  cannot  enforce  contracts  in  our  courts. 
Conn.  Mut.  Ins.  Co.  vs.  Hayden,  60  Neb.,  636;  Barber  vs. 
Boehen,  21  Neb.,  450. 

Occupation  tax  on  Ins.  Co.  valid.  German  Ins.  Co.  vc.  City 
of  Minden,  51  Neb.,  870. 

Service  of  summons  on  agent  good.  Bankers  Ins.  Co.  vs. 
Robbins,  55  Neb.,  117. 

Person  taking  application  is  agent  of  company.  State  Ins. 
Co.  vs.  Jordan,  29  Neb.,  514. 

Local  agent  may  consent  to  additional  insurance  or  to 
mortgage  of  property.  German  Ins.  Co.  vs.  Rounds,  35  Neb., 
752;  German  Ins.  Co.  vs.  Penrod,  35  Neb.,  273. 

Agreement  of  soliciting  agent  to  procure  insurance,  not 
binding  until  policy  is  issued.  Farmers  Mut.  Ins.  Co.  vs.  Gra- 
ham, 50  Neb.,  818. 

Knowledge  of  soliciting  agent  obtained  while  taking  applica- 
tion is  knowledge  of  company.  Home  Ins.  Co.  vs.  Gurney,  56 
Neb.,  306;  Phoenix  Ins.  Co.  vs.  Holcombe,  57  Neb.,  622. 


466 


A HAND  BOOK 


Knowledge  of  recording  agent  is  knowledge  of  company. 
Home  Ins.  Co.  vs.  Bermstein,  55  Neb.,  260;  Eagle  Ins.  Co.  vs. 
Globe  Co.,  44  Neb.,  380. 

Contract  of  insurance  should  be  construed  strongly  against 
company.  Conn.  Ins.  Co.  vs.  Waugh,  60  Neb.,  353. 

Premium  note  sufficient  consideration  for  policy.  F.  & 
M.  Ins.  Co.  vs.  Wyard,  59  Neb.,  451. 

Act  of  unauthorized  person  in  taking  application  ratified 
by  Company  by  accepting  same.  F.  & M.  Ins.  Co.  vs.  Wyard, 
59  Neb.,  451. 

Where  policy  is  ambiguous,  parol  evidence  is  admissible. 
M.  W.  A.  vs.  Kline,  50  Neb.,  345. 

Recitals  not  contractual  not  binding.  Conn.  Mut.  vs.  Hay- 
den, 60  Neb.,  636. 

In  absence  of  fraud  or  mistake,  written  contract  of  insur- 
ance cannot  be  varied  by  parol.  McLaughlin  vs.  Ins.  Co.,  38 
Neb.,  725. 

Parol  contract  of  insurance  may  bind  Company.  Neb.  & 
Iowa  Ins.  Co.  vs.  Seiver,  27  Neb.,  541. 

Policy  may  be  reformed  in  equity.  Cook  vs.  Ins.  Co.,  60 
Neb.,  127;  Slobodisky  vs.  Ins.  Co.,  52  Neb.,  395;  Home  Ins.  Co. 
vs.  Gurney,  56  Neb.,  306;  Home  Ins.  Co.  vs.  Wood,  50  Neb.,  381; 
Pacific  Ins.  Co.  vs.  Frank,  44  Neb.,  320. 

Misdescription  of  property  in  policy  not  fatal,  and  reforma- 
tion not  necessary  to  recover.  Omaha  Ins.  Co.  vs.  Dufek,  44 
Neb.,  241;  Phoenix  Ins.  Co.  vs.  Gebhardt,  32  Neb.,  144. 

Mutual  Ins.  Co.  may  recover  judgment  for  full  amount  of 
premium  note.  Farmers  Ins.  Co.  vs.  Wilder,  35  Neb.,  572. 

Where  there  is  breach  causing  forfeiture,  no  unearned 
premium  can  be  recovered  by  assured.  Home  Ins.  Co.  vs.  Kuhl- 
man,  58  Neb.,  488;  Farmers  Mut.  vs.  Home  Ins.  Co.,  54  Neb., 
740. 

Assignment  of  policy  without  consent  of  Company,  voids 
same.  New  England  Co.  vs.  Kneally,  38  Neb.,  895. 

In  order  to  cancel  policy,  Company  must  notify  assured 
and  return  unearned  premium.  German  Ins.  Co.  vs.  Rounds, 
35  Neb.,  752. 

Member  of  Mutual  Ins.  Co.  must  pay  assessments  in  order 
to  have  his  policy  canceled.  Burmood  vs.  Ins.  Co.,  42  Neb.,  598. 

Material  misrepresentation  voids  policy.  Seal  vs.  F.  & M. 
Ins.  Co.,  59  Neb.,  253. 

May  prove  correct  statements  to  agent  by  parol,  though 
false  statements  were  placed  in  written  application  by  agent. 
German  Ins.  Co.  vs.  Hart,  43  Neb.,  441;  German  Ins.  Co.  vs. 
Frederick,  57  Neb.,  538;  Omaha  Ins.  Co.  vs.  Crighton,  50  Neb., 


OF  MUTUAL  INSURANCE 


457 


314;  Home  Ins.  Co.  vs.  Fallon,  45  Neb.,  554;  State  Ins.  Co.  vs. 
Jordan,  29  Neb.,  514. 

The  difference  between  warranty  and  representation  stated. 
Aetna  Ins.  Co.  vs.  Simmons,  49  Neb.,  811. 

Statements  construed  as  representations  and  not  war- 
ranties. M.  W.  A.  vs.  Shryock,  54  Neb.,  250;  Omaha  Ass’n.  vs. 
Kettenback,  49  Neb.,  842,  and  55  Neb.,  330. 

False  statement  as  to  title  voids  policy.  Ehrsam  vs.  Ins. 
Co.,  43  Neb.  554;  F.  & M.  Ins.  Co.  vs.  Hahn,  96  N.  W.,  225. 

Encumbrance  without  consent  of  Company  voids  policy. 
Seal  vs.  Ins.  Company,  59  Neb.,  253;  Johansen  vs.  Home  Ins. 
Co.,  54  Neb.,  548. 

Forfeitures  not  favored  by  court.  Phoenix  Ins.  Co.  vs. 
Holcombe,  57  Neb.,  622;  Conn.  Ins.  Co.  vs.  Jeary,  60  Neb.,  338; 
F.  & M.  Ins.  Co.  vs.  Newman,  58  Neb.,  504;  Springfield  Ins.  Co. 
vs.  McLimons,  28  Neb.,  846. 

Provision  that  policy  shall  lapse  if  premium  not  paid  when 
due  is  reasonable  and  valid.  Home  Ins.  Co.  vs.  Garbacz,  48 
Neb.,  827;  Phoenix  Ins.  Co.  vs.  Bachelder,  32  Neb.,  490;  39 
Neb.,  95;  F.  & M.  Ins.  Co.  vs.  Wyard,  59  Neb.,  451;  Farmers 
Mut.  Ins.  Co.  vs.  Kinney,  64  Neb.,  808. 

Removal  of  insured  property  without  consent  of  Company 
voids  policy.  Burlington  Ins.  Co.  vs.  Cambpell,  42  Neb.,  208. 

Additional  insurance  without  consent  of  Company  voids 
policy,  but  breach  may  be  waived.  Home  Ins.  Co.  vs.  Wood, 
50  Neb.,  381;  German  Ins.  Co.  vs.  Heiduck,  30  Neb.  288;  Slobo- 
disky  vs.  Ins.  Co.  53  Neb.,  816. 

Mortgaging  chattels  without  consent  of  Company  voids 
policy,  but  if  paid  before  loss,  insured  may  recover.  Johansen 
vs.  Home  Ins.  Co.,  54  Neb.,  548,  and  59  Neb.,  349;  State  Ins. 
Co.  vs.  Schreck,  27  Neb.,  527;  Omaha  Ins.  Co.  vs.  Dierks,  43 
Neb.,  473. 

Transfer  of  title  without  consent  of  Company  voids  policy. 
F.  & M.  Ins.  Co.  vs.  Jensen,  56  Neb.,  284;  58  Neb.,  522. 

Contract  of  sale  does  not  void  policy.  Grable  vs.  German 
Ins.  Co.,  32  Neb.,  645. 

Transfer  of  property  if  reconveyed  before  loss  does  not  void 
policy.  German  Mut.  vs.  Fox,  96  N.  W.,  652. 

Transfer  by  one  partner  or  joint  owner  to  the  other,  does 
not  void  policy.  German  Mutual  vs.  Fox,  96  N.  W.,  652 ; Phoenix 
Ins.  Co.  vs.  Holcombe,  57  Neb.,  622. 

False  statements  in  proofs  of  loss  do  not  prevent  recov- 
ery. Springfield  Ins.  Co.  vs.  Winn,  27  Neb.,  649. 

Waiver  of  breach  of  condition  need  not  rest  on  estoppel  or 
new  consideration.  Billings  vs.  German  Ins.  Co.,  34  Neb.,  502;, 
Home  Ins.  Co.  vs.  Kuhlman,  58  Neb.,  488. 


458 


A HAND  BOOK 


Demanding  proof  waives  breach  of  condition.  Home  Ins. 
Co.  vs.  Phelps,  51  Neb.,  623. 

Waiver  must  be  pleaded  and  proved.  Phoenix  Ins.  Co.  vs. 
Bachelder,  32  Neb.,  490;  German  Ins.  Co.  vs.  Shader,  96  N. 

604. 

Receiving  and  retaining  premium  after  knowledge  of  loss, 
waives  default.  Phoenix  Ins.  Co.  vs.  Dungan,  37  Neb.,  468; 
Phoenix  Ins.  Co.  vs.  Lansing,  15  Neb.,  494;  Farmers  Mut.  Ins. 
Co.  vs.  Wilder,  35  Neb.,  572. 

Additional  insurance  will  not  void  policy  if  agent  knew  of 
it  when  policy  was  written.  Home  Ins.  Co.  vs.  Hamang,  44 
Neb.,  566;  Hughes  vs.  Ins.  Co.,  40  Neb.,  626;  Phoenix  Ins.  Co. 
vs.  Holcombe,  57  Neb.,  622 ; Phoenix  Ins.  Co.  vs.  Covey,  41  Neb., 
724. 

Mutual  Insurance  Co.  is  liable  on  its  note  for  loss  on  horse 
by  accident  although  it  has  no  power  to  insure  against  accidents. 
Farmers  Mutual  vs.  Meese,  49  Neb.,  861. 

Owner  of  property  may  testify  as  to  its  value.  Ins.  Co.  vs. 
Bachler,  44  Neb.,  549. 

Meaning  of  ‘ * totally  destroyed  by  fire. ’ * Ins.  Co.  vs.  Bach- 
ler, 44  Neb.,  549;  Eddy  vs.  German  Ins.  Co.,  51  Neb.,  291. 

Denial  of  liability  waives  notice  of  loss.  Omaha  Ins.  Co. 
vs.  Dierks,  43  Neb.,  473;  St.  Paul  F.  & M.  Ins.  Co.  vs.  Gotthelf, 
35  Neb.,  351. 

Provision  in  policy  that  notice  of  proof  must  be  given 
within  60  days,  is  valid  and  must  be  pleaded  and  proven,  or 
that  same  was  waived.  German  Ins.  Co.  vs.  Davis,  40  Neb.,  700 ; 
Western  Ins.  Co.  vs.  Richardson,  40  Neb.,  1;  German  Ins.  Co. 
vs.  Fairbank,  32  Neb.,  750. 

Recovery  may  be  had  on  parol  contract  of  insurance. 
McCann  vs.  Aetna  Ins.  Co.,  3 Neb.,  198;  Neb.  & Iowa  Ins.  Co.  vs. 
Seiver,  27  Neb.,  541;  B.  & M.  Relief  Dept.  vs.  White,  41  Neb., 
547. 

Validity  of  provision  requiring  certificate  of  character  in 
proof  of  loss  doubted.  Home  Ins.  Co.  vs.  Hamang,  44  Neb.,  566. 

Provision  for  examination  of  insured  construed.  Aetna 
Ins.  Co.  vs.  Simmons,  49  Neb.,  811. 

If  Company  claims  proofs  are  defective,  it  must  return 
same  with  specific  statement  of  objections.  Union  Ins.  Co.  vs. 
Barwick,  36  Neb.,  223;  Home  Ins.  Co.  vs.  Hamang,  44  Neb., 
566;  National  Ins.  Co.  vs.  Day,  55  Neb.,  127. 

By  denying  all  liability,  Company  waives  proofs  of  loss. 
Phoenix  Ins.  Co.  vs.  Meier,  28  Neb.,  124;  Dwelling  House  Ins. 
Co.  vs.  Brewster,  43  Neb.,  528;  German  Ins.  Co.  vs.  Kline,  44 
Neb.,  395;  Phoenix  Ins.  Co.  vs.  Bachelder,  32  Neb.,  490,  39  Neb., 


OF  MUTUAL  INSURANCE 


469 


95;  Omaha  Ins.  Co.  vs.  Hildebrand,  54  Neb.,  306;  Western  Ins. 
Co.  vs.  Richardson,  40  Neb.,  1;  Aetna  Ins.  Co.  vs.  Simmons,  49 
Neb.,  811;  Home  Ins.  Co.  vs.  Hamang,  44  Neb.,  566;  Lansing  vs. 
Ins.  Co.,  93  N.  W.,  756. 

Provision  for  arbitration  is  void.  German  Ins.  Co.  vs. 
Etherton,  25  Neb.,  505;  Home  Ins.  Co.  vs.  Bean,  42  Neb.,  537. 

Limitation  of  time  to  sue  different  from  statute  is  void. 
Omaha  Ins.  Co.  vs.  Drennan,  56  Neb.,  623. 

Insurance  Company  that  has  paid  loss,  is  subrogated  to 
rights  of  insured  against  person  who  caused  fire.  Omaha  etc. 
Railroad  Co.  vs.  Ins.  Co.,  53  Neb.,  514. 

May  sue  where  cause  of  action  arose,  although  Company 
has  no  agent  in  said  county.  Ins.  Co.  vs.  McLimans,  28  Neb., 
653;  Bankers  Ins.  Co.  vs.  Robbins,  53  Neb.,  44. 

Breach  of  condition  must  be  pleaded  and  proved.  F.  & 
M.  Ins.  Co.  vs.  Wyard,  59  Neb.,  451;  F.  & M.  Ins.  Co.  vs.  Peter- 
son, 47  Neb.,  747. 

Defenses  of  no  proofs  of  loss  and  that  assured  burned  build- 
ing, are  not  inconsistent.  Home  Ins.  Co.  vs.  Decker,  55  Neb., 
346. 

(For  other  laws  and  decisions,  see  States,  Chapter  XXVI.) 


CHAPTER  XXVI. 


THE  STATE  AND  THE  MUTUALS. 

The  following  sketches  of  the  conditions  of  the  Mutuals  m 
the  several  states  should  be  full  of  encouragement  to  the  friend 
of  co-operation. 

The  variety  of  methods,  the  multiplicity  of  plans  and  the 
procedures  in  the  several  states  will  be  surprising.  That  uni- 
formity, which  is  the  dream  of  idealists,  is  far  off  yet,  though 
the  underlying  principle,  to  furnish  insurance  at  cost,  is  the  same 
in  all. 

The  facts  show  that  success  is  possible  with  any  one  of  the 
methods  mentioned. 

It  has  been  remarked  by  foreigners  that  the  American 
people  can  work  under  any  kind  of  a constitution  and  any  kind 
of  a charter.  The  Mutuals  seem  to  be  endowed  with  a similar 
power.  They  have  vitality  enough  to  survive  the  very  worst 
legislation. 

No  attempt  is  made  in  these  sketches  to  give  a full  account 
of  the  mutuals  of  any  state,  but  only  to  bring  out  points  of 
special  interest. 


NO  MUTUALS. 

The  officers  of  Arizona,  Montana,  Nevada,  Utah,  New  Mex- 
ico and  Wyoming  say  that  there  are  no  Mutual  Fire  Insurance 
Companies  within  their  respective  jurisdictions.  No  informa- 
tion whatever  can  be  obtained  from  Louisiana. 

THE  SOUTH  EASTERN  STATES. 

Mr.  M.  G.  L.  Roberts,  of  Chattanooga,  Tennessee,  as  a re- 
sult of  much  effort,  has  obtained  the  following  information  con- 
cerning Mutuals  in  the  south  eastern  states. 

There  are  three  Mutual  companies  in  Kentucky,  carrying 
$10,000,000  insurance  and  having  more  than  $500,000  admitted 

460— 


OF  MUTUAL  INSURANCE 


461 


assets.  There  are  seventeen  assessment  companies  carrying 
$25,000,000  in  risks,  and  having  more  than  $250,000  in  admitted 
assets.  The  Mutuals  in  that  state  do  not  seem  to  be  satisfied 
with  the  laws.  There  apears  to  be  over  taxation  and  restrictions 
of  territory. 

Tennessee  has  two  state  Mutuals,  the  German,  of  Memphis, 
and  the  United  States,  of  Chattanooga,  with  $25,000  assets  and 
about  $2,500,000  insurance.  There  are  also  six  assessment  insur- 
ance companies,  with  $10,000  assets  and  $2,500,000  insurance. 
The  Mutual  Insurance  laws  of  Tennessee  are  not  satisfactory  to 
the  companies  which  are  limited  in  territory  and  in  risks.  A 
state  association  has  been  formed  of  which  over  half  of  the 
companies  in  the  state  are  members  and  the  outlook  for  im- 
proved laws  in  the  near  future  is  very  hopeful. 

Alabama  has  no  Mutual  Companies  and  no  laws  permitting 
the  organization  of  such  companies. 

Georgia  has  some  ten  or  fifteen  Mutual  companies  but 
as  they  are  not  required  to  report  to  the  insurance  department 
no  statistics  are  at  hand.  All  these  companies  seem  to  use  a 
mixture  of  methods,  the  style  of  business  being  somewhat  along 
the  joint  stock  line  with  a profit  sharing  feature.  They  are 
furnishing  a large  amount  of  insurance  at  cost,  thus  attaining 
the  object  of  the  Mutuals  by  a somewhat  roundabout  process. 
Doubtless  the  time  will  come  when  the  conditions  will  be  more 
favorable. 

Florida,  like  Alabama,  has  no  Mutual  companies,  and  no  law 
permitting  the  organization  of  any. 

Mississippi  seems  to  have  two  or  three,  possibly  more, 
Mutual  companies,  but  I have  never  been  able  to  get  hold  of  any 
satisfactory  reports  from  that  state,  either  as  to  the  companies, 
or  the  Mutual  laws. 

Virginia  has  several  Mutual  companies,  one  or  two  old, 
well  established,  very  strong  companies.  The  Insurance  Depart- 
ment of  that  state  does  not  issue  any  report  so  that  statistics 
are  not  available. 

West  Virginia  has  a few  Mutuals,  but  they  obtain  their 
authority  to  do  business  from  some  county  official,  County  or 
Probate  Judge,  and  the  Insurance  Department  can  give  no  in- 
formation about  them. 

North  Carolina  has  several  Mutuals,  and  some  mixed,  that 
is,  stock  or  guaranty  fund  Mutuals.  The  companies  in  that 
state  seem  to  have  done  fairly  well  but  I have  been  unable  to 
gather  definite  information  about  them. 

South  Carolina  has  two  or  three  companies,  but  I cannot 
get  statistics.  Since  this  was  written  several  localities  have 


462 


A HAND  BOOK 


taken  steps  to  organize  mutuals  but  only  two  or  three  have 
begun  business  and  of  these  no  particulars  can  be  learned. 

ARKANSAS. 

Arkansas  reports  several  Mutuals  which  seem  to  be  doing 
a very  good  business.  Their  assets  and  risks  are  as  follows : 

Premiums  notes  $ 162,307.88 

Cash  and  other  assets 91,257.66 


Total  assets 253,565.54 

Total  risks 11,482,372.00 

or,  $2.20  on  the  $100. 

A new  Mutual  is  reported,  the  Dixie  Mutual  Fire,  at  Helena. 
There  are  also  five  Farmers’  Mutual  Aid  Societies  with  total 
risks  of  $339,759.00.  These  are  said  to  be  giving  good  satisfac- 
tion. The  total  Mutual  risks  amount  to  $11,822,131.00.  In  all 
there  have  been  two  failures  in  the  state. 

The  laws  of  Arkansas  have  some  peculiarities,  and  the 
Mutuals  of  the  state  hope  for  changes.  At  present  they  are' 
hampered  by  troublesome  restrictions  and  compelled  to  follow 
too  closely  in  the  footsteps  of  the  old  line  companies. 

C.  S.  Collins  of  Little  Rock  furnishes  the  following: 

When  the  Anti-Trust  Law  passed  the  Legislature  last 
spring,  after  determined  opposition  lasting  through  years,  not 
only  on  the  part  of  the  Trust  Magnates,  but  especially  in  the 
face  of  the  active  opposition  of  the  Old  Line  Insurance  Com- 
panies; those  companies  as  usual  taking  the  lead  as  the  repre- 
sentatives of  all  other  trusts,  resorted  to  their  usual  tactics  and 
through  their  retained  attorneys  sought  to  defeat  the  law  in  the 
courts.  Having  failed  they  withdrew  from  the  state  and  have 
been  constructing  subterfuges  whereby  they  can  hold  on  to  the 
business  by  organizing  dummy  Stock  Companies  in  the  state, 
and  reinsure  their  work  out  of  the  state  and  thus,  by  indirec- 
tion, do  the  business.  In  this  procedure,  as  might  be  expected, 
the  same  old  methods  of  slander  and  opposition  have  been  re- 
sorted to  in  almost  every  conceivable  form  in  order  to  destroy 
the  credit  not  only  of  the  Mutual  Companies  but  every  form  of 
local  organization,  for  these  gentlemen  deny  the  right  of  any 
people  to  do  business  except  by  their  permission,  and  thereby 
prove  conclusively  their  adherence  to  the  spirit  of  monoply. 
In  the  meantime,  another  enactment  (procured  largely  by  the 
stealthy  influence  of  local  representatives  of  the  Old  Lines) 
has  prevented  the  multiplication  of  Local  Mutuals  by  making 
it  too  burdensome  on  individuals.  The  old  companies  have 
pushed  business  and  have  largely  increased  in  volume,  while 


OF  MUTUAL  INSURANCE 


463 


quite  a number  of  Local  Stocks  have  been  formed  and  between 
them  the  business  demand  is  being  quite  as  well  taken  care  of 
without  the  down  East  and  European  jumbos  as  it  was  with 
them.  Rates  have  been  somewhat  lowered  all  over  the  state. 
It  is  a singular  fact,  observable  not  only  in  Arkansas  but  in 
every  other  state  where  effective  legislation  has  been  attempted 
to  curb  the  rapacity  of  Commercial  combinations,  the  Insurance 
question  has  been  used  through  the  Jumbo  Companies  as  a club 
to  terrorize  the  people  and  prevent  them  from  doing  anything 
that  means  anything  but  some  1 1 make  believe  ”.  As  a matter  of 
fact  the  insurance  question  is  not  the  leading  question  in  the 
law.  It  only  attracts  attention  and  produces  that  impression 
by  the  roar  set  up  by  the  pigeon  stools. 

As  a matter  of  fact  the  Arkansas  Anti-Trust  Law,  while 
awkwardly  drawn,  means  something;  and,  if  made 'a  model  and 
improved  upon  by  all  other  states,  would  put  an  end  to  Trusts, 
or  land  a few  thousand  big  thieves  in  the  penitentiary  instead 
of  pretending  to  execute  law  against  crime  by  sending  Cuffy 
to  the  rock  pile  for  stealing  a pig  when  hungry.  The  section  in 
it  making  it  a crime  for  any  corporation  or  person  to  use  money 
criminally  to  break  down  competition  by  selling  under  cost, 
suggests  the  Standard  Oil  and  beef  trusts  and  is  worth  its 
weight  in  gold  and  worthy  of  emulation  in  every  state  where 
the  people  hate  such  cruel  and  disreputable  methods. 

CALIFORNIA. 

California  has  ten  Mutuals  which  at  the  date  of  the  last 
attainable  report,  had  at  risk  $6,619,588,  an  enormous  gain  over 
the  previous  figures,  and  under  the  circumstances,  remarkably 
encouraging. 

The  Mutuals  in  California  are  hampered  by  adverse  legisla- 
tion and  annoyed  by  unfriendly  officials.  Nevertheless  they  are 
growing  in  business  at  a rapid  rate  and  there  are  movements 
which  will  result  in  the  forming  of  new  companies.  There  is  a 
complaint  of  high  rate  charged  by  other  companies.  A law, 
somewhat  friendly  to  the  Mutuals,  was  passed  at  a session  of 
the  legislature  sometime  since,  but  was  promptly  vetoed  by  the 
Governor.  That  state  of  affairs  will  not  last  long. 

The  Mutuals  are  rapidly  increasing  in  strength  and  will 
soon  overpower  the  opposition. 

COLORADO. 

The  Superintendent’s  report  for  1904  gives  the  following 
figures : 

There  are  seven  Mutual  Fire  Insurance  Companies  with  a 
total  risk  of  $8,466,776.  The  average  premium  rate  for  all 


464 


A HAND  BOOK 


companies  was  $1.49,  for  Mutuals  $1.20,  showing  a decided 
advantage  in  economy  for  the  Mutuals. 

Conditions  are  not  yet  favorable  in  all  parts  of  the  state. 
There  is  but  one  purely  Farm  Mutual,  and  it  is  doing  but  a 
moderate  business.  Many  of  the  counties  of  Colorado  are  rather 
sparsely  settled  and  while  the  best  farms  have  good  buildings 
there  are  regions  where  many  structures  are  makeshifts  to  be 
replaced  by  substantial  structures  in  the  future,  that  is,  if  the 
mine  holds  out.  Year  by  year,  the  conditions  in  Colorado  are 
improving.  The  Mutuals  are  increasing  their  business,  and 
while  county  mutuals  are  yet  in  the  future,  the  State  Mutuals 
are  answering  the  purpose  perfectly  well. 

Insurance  companies  must  not  take  any  one  risk  exceeding 
five  per  cent  of  their  paid  up  capital.  The  superintendent  recom- 
mends the  carrying  of  reserves  by  all  companies.  The  legisla- 
tion relating  to  Mutuals  consists  of  two  or  three  paragraphs. 
The  workings  seem  to  be  controlled  by  the  general  corporation 
laws  of  the  state. 


CONNECTICUT. 


This  state  has  at  the  present  time,  sixteen  mutual  com- 
panies. One  of  the  number,  the  Middlesex  Mutual  of  Middle- 
town  is  licensed  to  do  business  in  the  state  of  Massachusetts. 
There  are  only  four  that  write  outside  of  their  own  immediate 
locality,  as  follows: 


Assets  Surplus 

Hartford  County  Mutual  $932,901.00  $834,157.06 

Litchfield  Mutual  110,504.42  48,224.63 

Middlesex  of  Middletown 907,282.06  681,295.89 

New  London  County  Mutual 222,876.40  149,948.42 

Others  have  been  fairly  successful  in  their  limited  territory. 

The  total  amount  at  risk  in  Mutual  Companies  in  this  state 
is  $106,037,079.  The  total  assets  are  $2,283,318.  All  of  these 
companies  write  on  a cash  premium  basis  but  do  not  pay  divi- 
dends to  the  policy  holders  as  do  Massachusetts  Companies.  In 
most  cases  their  rates  are  the  same  as  stock  companies,  although 
in  a few  localities  there  is  a slight  differential  rate  in  their 
favor,  by  agreement  with  the  stock  companies.  These  com- 
panies confine  their  underwriting  to  the  following  classes: 
Dwellings,  private  stables  and  farms,  with  the  exception  of  the 
Middlesex  and  New  London,  which  occasionally  write  small 
lines  on  mercantile  buildings. 

The  Mutual  Assurance  Company  of  the  city  of  Norwich  was 
chartered  in  1795  and  is  still  doing  business,  and  it  is  stated 
that  its  first  policy  is  still  in  force.  The  laws  of  Connecticut 


OF  MUTUAL  INSURANCE 


465 


are  fair  and  reasonable,  being  the  result  of  many  years  experi- 
ence. 

As  all  Companies  are  chartered  by  the  General  Assembly 
and  each  is  governed  by  the  peculiar  provisions  of  its  own 
charter,  there  is  very  little  in  the  statutes  especially  relating 
to  Mutuals. 

These  organizations  seem  to  be  doing  a steady  and  success- 
ful business. 

DELAWARE. 

Delaware  is  one  of  the  banner  Mutual  states.  The  follow- 
ing are  the  statistics. 

5 Mutuals,  one  of  which  operates  in  another  state,  all  old 
established. 

4 Joint  Stock  companies,  three  only  reported,  one  a new 


organization. 

5 Mutuals,  total  assets  $ 2,754,669.36 

5 Mutuals,  total  risks 26,805,490.08 

3 Stock,  total  assets 404,208.77 

3 Stock,  total  risks  5,847,997.00 


Assets  per  $100,  Mutuals,  $10.68;  Joint  Stock,  $5.85. 

Oldest  Joint  Stock  1870. 

Youngest  Mutual  1877. 

From  this  it  will  be  seen  that  the  Mutuals  are  far  in  the 
lead.  They  appear  to  have  been  chartered  for  periods  of  years 
by  the  legislature.  These  charters  have  been  renewed  from  time 
to  time  as  they  expired.  The  insurance  laws  are  fair.  They  are 
very  few  restrictions  on  the  Mutuals. 

The  Farmers’  Fire  Mutual  of  Wilmington  gets  all  its  busi- 
ness through  its  directors  and  the  plan  works  well.  They  take 
deposit  notes,  five  per  cent  of  which  is  annual  premium.  They 
appear  to  have  all  the  business  they  care  to  handle.  They  have 
never  assessed  a deposit  note  beyond  the  annual  premium. 

The  New  Castle  Mutual  Insurance  Company  does  business 
along  the  same  line  and  is  fully  as  successful.  They  do  not 
solicit  business,  they  get  all  they  want  without.  They  say 
“Mutual  Insurance  has  been  very  successful  in  this  state.  We 
have  two  companies'  in  this  city.  Both  have  been  in  business 
fifty-five  years.  They  have  the  cream  of  the  business,  their 
annual  profits  average  about  twenty-five  perecent  to  the  policy 
holder.  There  never  has  been  a failure  of  a Mutual  in  the 
state. 9 1 

These  companies  use  their  charters  as  constitutions  and  by- 
laws, what  is  lacking  is  supplied  by  the  general  corporation  laws 
of  the  state. 

29 


466 


A HAND  BOOK 


There  are  three  other  Mutuals,  one  of  which  is  under  con- 
trol of  the  Patrons  of  Husbandry.  Their  statements  all  show  a 
good  business. 

Delaware  has  a valued  policy  law  but  it  does  not  seem  to 
produce  the  desired  results.  One  correspondent  calls  it  a nuis- 
ance. 

IDAHO. 

Idaho  has  three  Mutuals.  The  Bingham  County  Farmers  ’ 
Mutual  of  Idaho  Falls,  total  risks  about  $50,000,  the  Farmers ’ 
Mutual  Fire  Ins.  Co.,  of  Lalah  County,  of  Troy  Idaho,  risks 
about  the  same.  Both  of  these  are  county  Mutuals,  and  have 
increased  their  risks  since  this  was  written. 

There  is  also  the  Idaho  Mutual  Co-operative  Insurance 
Company  of  Boise,  Idaho.  This  has  over  a million  at  risk. 

W.  R.  Hyatt,  the  Secretary,  writes  as  follows: 

“Our  Company,  which  was  organized  on  the  10th  day  of 
May,  1903,  has  proven  a decided  success.  We  have  now  over 
one  million  at  risk  and  have  paid  in  the  neighborhood  of  $5,000 
losses  since  the  first  of  January  and  met  all  of  our  expenses 
promptly,  all  of  which  we  have  done  on  50  per  cent  of  the 
board  rate  which  we  collect  at  the  time  the  insurance  is  written. 
We  have  not  levied  an  assessment  and  do  not  anticipate  that  we 
will  have  to  in  the  near  future. 

“We  have  organized  under  a special  law  passed  two  years 
ago  by  our  state  legislature  which  permitted  our  organization, 
which  law,  by  the  way,  is  one  that  was  formed  by  a committee 
of  your  National  Association  and  which  was  brought  here  from 
the  office  of  the  Farmers’  Mutual  Insurance  Company  of  Lin- 
coln, Nebraska. 

“We  have  just  been  successful  in  the  Supreme  Court  in  a 
suit  which  we  brought  to  establish  our  position  in  regard  to  the 
payment  of  2 per  cent  tax  on  the  gross  receipts  of  the  com- 
pany, less  the  losses  and  returned  premium,  which  is  imposed 
upon  all  other  insurance  companies  under  the  general  insurance 
laws  of  the  state.  We,  however,  were  successful  in  the  case 
and  the  Supreme  Court  held  that  we  did  not  have  to  pay  the 
tax. 9 9 

THE  NEW  LAW. 

An  act  to  authorize  the  organization  of  Mutual  Co-operative 
Insurance  Companies  to  insure  both  personal  and  real  property 
against  loss  by  fire,  lightning,  tornado,  cyclone,  windstorm,  hail 
and  the  fidelity  of  persons  and  to  regulate  their  conduct. 

Be  it  enacted  by  the  legislature  of  the  state  of  Idaho. 

Section  1.  Organization.  Any  number  of  persons  residing 
in  this  state  who  own  personal  or  real  property  of  not  less  than 


OF  MUTUAL  INSURANCE 


467 


$100,000,  in  value  which  they  desire  to  have  insured  may  asso- 
ciate themselves  together  for  the  purpose  of  mutual  co-operative 
insurance  against  loss  by  fire,  lightning,  tornado,  cyclone,  wind- 
storm and  the  fidelity  of  persons,  and  form  an  incorporated 
company  for  such  purposes  and  issue  policies.  Such  companies 
shall  embody  the  words  “ Mutual  Co-operative  ’ ’ in  its  name. 

Section  2.  Recording.  The  articles  of  incorporation  of 
such  company  shall  be  filed  with  the  Insurance  Commissioner 
for  examination.  If  by  him  found  to  be  in  accordance  with  the 
provisions  of  this  act,  and  the  name  of  such  company  is  not 
similar  to  the  name  of  any  other  insurance  company  organized 
in  this  state,  he  shall  thereupon  deliver  to  such  company  a certi- 
fied copy  of  the  articles  of  incorporation,  which  on  being  record- 
ed in  the  office  of  the  Recorder  of  the  County  where  the  prin- 
cipal office  of  such  company  shall  be  located,  and  a copy  thereof, 
certified  by  the  County  Recorder,  filed  with  the  Secretary  of 
State.  The  Secretary  of  State  must  then  issue  to  the  corpora- 
tion, over  his  official  seal,  a certificate  that  a copy  of  the  articles 
containing  the  required  statement  of  facts  has  been  filed  in  his 
office;  and  thereupon  the  persons  executing  the  articles,  and 
their  associates  and  successors,  shall  be  entitled  to  transact 
business  and  issue  policies  of  insurance  under  the  corporate 
name  stated  in  the  articles,  and  for  the  term  of  fifty  years,  un- 
less it  is  in  the  articles  of  incorporation  otherwise  stated,  or 
by  law  otherwise  specially  provided. 

A copy  of  any  articles  of  incorporation  filed  in  pursuance 
of  this  act  and  certified  by  the  Secretary  of  State  must  be  re- 
ceived in  all  courts  and  elsewhere  as  prima  facia  evidence  of 
the  facts  therein  stated. 

Section  3.  Members.  All  persons  and  corporations,  muni- 
cipal or  otherwise,  who  effect  insurance  in  any  company  organ- 
ized under  the  provisions  of  this  act  shall  thereby  become  mem- 
bers of  such  company  and  continue  to  be  during  the  period 
their  insurance  is  in  force  and  no  longer.  All  persons  so  insured 
shall  give  their  obligation  to  such  company  in  an  application 
binding  themselves,  their  heirs,  executors,  administrators,  suc- 
cessors or  assigns  to  pay  all  legal  assessments  made  upon  them 
by  such  company.  They  shall  also  at  the  time  of  effecting 
insurance  pay  such  an  amount  in  cash  as  is  provided  for  in  the 
by-laws,  but  no  Company  shall  organize  or  transact  business 
that  does  not  provide  for  a reasonable  amount  of  cash  to  be 
paid  down  at  the  time  the  insurance  is  taken  in  proportion  to 
the  risk  that  is  to  be  carried.  The  application  of  any  corpora- 
tion or  municipality  for  insurance  in  any  company  shall  be 
signed  by  the  officer  or  officers  authorized  to  sign  ordinary  con- 
tracts of  such  corporations  or  municipalites. 


A HAND  BOOK 


468 


Section  4.  Meetings.  An  annual  meeting  of  such  Company 
for  the  purpose  of  electing  directors  as  provided  in  the  articles 
of  incorporation,  shall  be  held  in  each  year  at  the  principal 
office  of  such  Company  of  which  all  members  shall  be  notified 
in  such  manner  and  form  as  the  by-laws  shall  provide.  Special 
meetings  may  be  held  by  order  of  the  president  upon  the  written 
request  of  a majority  of  all  directors  with  a like  notice.  Each 
member  may  vote  by  ballot  for  as  many  persons  as  there  are 
directors  to  be  elected. 

Section  5.  Directors.  The  Number  of  Directors  shall  not 
be  less  than  six  or  more  than  twelve.  Of  those  elected  at  the 
time  of  the  organization  of  such  Company,  one-third  shall  be 
elected  for  one  year,  one-third  for  two  years  and  one-third  for 
three  years.  At  each  annual  meeting  thereafter  a number  equal 
to  one-third  of  the  whole  number  of  directors  shall  be  elected, 
for  three  years  or  until  their  successors  are  elected  and  qualified. 
Such  directors  are  to  manage  the  affiairs  of  the  Company. 
Vacancies  in  the  Board  of  Directors  may  be  filled  by  the  remain- 
ing directors,  and  such  Board  of  Directors,  or  a majority  of 
them,  when  legally  convened  at  the  principal  office  of  the  Com- 
pany shall  be  competent  to  exercise  all  of  the  powers  created  by 
this  act. 

Section  6.  Officers.  Immediately  after  their  election  the 
Directors  must  organize  by  electing  a President,  who  shall  be 
one  of  their  number,  a Secretary  and  a Treasurer.  They  shall 
perform  the  duties  enjoined  upon  them  by  law  and  the  by-laws 
of  the  corporation. 

Such  officers  shall  receive  such  compensation  and  give  such 
bonds  as  the  by-laws  provide  or  the  Board  of  Directors  deter- 
mine. 

The  Board  of  Directors  shall  have  power,  by  two-thirds 
vote,  to  remove  any  officer  for  just  cause.  They  shall  also  fill 
any  vacancies  that  may  occur  from  any  cause. 

Section  7.  Agents  and  Employees.  The  Directors  of  such 
Company  may  appoint  agents,  clerks,  adjustors  and  other  em- 
ployees, allowing  them  such  compensation  and  exacting  from 
them  such  bonds  as  the  Directors  may  deem  proper.  The  Board 
of  Directors  may  appoint  an  Executive  Committee  to  whom  they 
may  delegate  the  minor  powers  and  authority  vested  in  such 
Board. 

Section  8.  By-Laws.  The  members  of  such  Company  or 
the  Board  of  Directors,  as  may  be  provided  in  the  Articles  of 
Incorporation,  shall  make  such  by-laws  not  inconsistent  with 
this  act  as  they  may  deem  necessary  for  the  management  of 
such  Company.  All  amendments  of  the  by-laws  shall  be  fur- 


OF  MUTUAL  INSURANCE 


469 


nished  to  the  members  in  such  manner,  form  and  time  as  the 
by-laws  shall  provide. 

Section  9.  Suits  At  Law.  If  any  member  of  such  Company 
for  a space  of  thirty  days  after  the  written  or  printed  notice  of 
assessment  has  been  mailed  to  him  or  her,  post-paid,  and  direct- 
ed to  the  post-office  as  stated  in  the  application  for  insurance, 
or  as  the  same  may  have  been  thereafter  changed  to  and  record- 
ed with  the  Company,  shall  neglect  to  pay  the  sum  assessed, 
such  Company  may  sue  for  and  recover  such  amount  and  costs. 
Suits  at  Law  may  be  brought  against  such  company  by  a,  mem- 
ber or  members  thereof  for  loss  sustained  if  payment  is  with- 
held after  such  loss  becomes  due.  The  officer  or  officers  of  such 
Company  who  shall  willfully  neglect  or  refuse  to  perform  the 
duties  imposed  upon  them  by  the  provisions  of  this  act,  shall 
be  liable  in  their  individual  capacity  to  the  persons  sustaining 
such  loss. 

Section  10.  Territory.  It  shall  be  lawful  for  such  Com- 
panies to  insure  property  only  within  this  state  until  such  time 
as  such  Company  shall  have  at  least  $5,000,000.00  at  risk,  and 
then  the  Board  of  Directors  may  determine  in  what  state  or 
states,  other  than  the  State  of  Idaho  it  shall  do  business  and 
apply  for  admittance  to  such  other  state  or  states.  Any  Mutual 
Co-operative  Insurance  Company  organized  under  the 
law  of  any  other  state  similar  in  form  and  in 
substance  to  this  act  may  be  admitted  to  do  busi- 
ness in  this  State  by  the  Insurance  Department 
of  the  State  upon  making  a showing  that  they  are  legally  incor- 
porated under  the  laws  of  their  own  state  and  have  complied 
with  the  conditions  of  such  law,  have  at  least  $5,000,000.00  of 
insurance  in  force,  and  the  proper  Insurance  Commissioner  of 
such  state  shall  certify  that  he  believes  such  Company  solvent, 
doing  a good  business,  officered  by  men  of  integrity  and  stand- 
ing, and  he  believes  they  are  entitled  to  the  confidence  of  the 
public,  and  upon  such  Company  procuring  a request  and  applica- 
tion for  membership  of  one  hundred  persons,  citizens  of  this 
state  having  property  that  they  desire  to  have  insured,  and 
paying  a fee  of  $25.00  to  the  Insurance  Commissioner  of  this 
state. 

Provided  always  that  the  Insurance  Commissioner  and  the 
laws  of  the  state,  where  such  company  applying  for  admission 
is  domiciled,  shall  grant  to  the  Mutual  Co-operative  Insurance 
Companies  of  this  state,  organized  under  this  or  similar  laws, 
like  rights  and  privileges  under  in  substance  the  same  rules  and 
restrictions. 

Section  11.  Policies.  Such  Companies  may  issue  policies 
on  all  kind  of  insurable  real  and  personal  property  as  herein 


470 


A HAND  BOOK 


provided  against  loss  or  damage  by  fire,  lightning,  tornado, 
cyclone  and  windstorm  and  the  fidelity  of  persons  for  any  length 
of  time  as  may  be  determined  upon  by  such  Company  in  its  by- 
laws. It  shall  not  issue  policies  on  any  one  risk  or  hazard  to 
exceed  $1,000.00  until  there  is  $300,000.00  insurance  in  force, 
when  policies  of  $2,000.00  may  be  issued;  or  issue  policies  for 
more  than  $2,000.00  on  any  one  risk  until  there  is  $1,000,000.00 
insurance  in  force,  when  policies  of  $3,000.00  may  be  issued; 
or  issue  policies  for  more  than  $3,000.00  on  any  one  risk  until 
there  is  $2,000,000.00  insurance  in  force,  when  policies  may  be 
issued  in  the  discretion  of  the  Company.  Provided  no  real 
property  shall  be  insured  for  more  than  three-fourths  its  value. 

Should  the  amount  of  insurance  decrease  below  any  of  the 
figures  above  enumerated,  the  amount  of  the  policy  must  be 
correspondingly  reduced  upon  its  renewal  or  within  three 
months  from  the  time  that  the  amount  of  insurance  falls  below 
the  foregoing  figures. 

All  policies  shall  be  signed  by  the  president  and  secretary, 
and  each  policy  holder  shall  be  furnished  with  the  by-laws  of 
the  Company.  Should  the  amount  of  insurance  of  any  Com- 
pany created  under  this  act  decrease  below  $100,000.00,  the 
president  of  such  Company  shall  at  once  call  a meeting  of  the 
members  to  consider  the  matter  of  disorganizing. 

Section  12.  Assessments.  All  assessments  shall  be  deter- 
mined by  a proper  classification  and  rating  of  the  property 
insured,  so  that  each  member  will  be  assessed  according  to  the 
greater  or  less  risk  of  the  property  insured  to  the  hazard  in- 
sured against. 

An  assessment  may  be  made  on  the  members  due  and  pay- 
able within  thirty  days  thereafter  to  enable  the  Company  to 
provide  for  loss  and  expenses  necessary  in  the  conducting  of  its 
business  whenever  the  Board  of  Directors  so  determine.  No 
assessment  shall  be  made  on  a member  for  liabilities  incurred 
prior  to  his  or  her  membership.  Any  member  may  be  excluded 
from  the  benefits  of  insurance  during  all  the  time  in  which  he 
or  she  may  be  in  default  of  payment  of  an  assessment,  and  the 
acceptance  of  such  assessment  after  the  same  has  once  become 
delinquent  shall  not  in  any  manner  make  the  Company  liable 
for  any  loss  or  damage  that  may  have  occured  during  the  period 
that  such  policy  was  suspended.  Any  member  shall  not  be 
liable  directly  to  any  other  member  for  such  other  member’s 
loss  or  damage,  but  the  liability  of  a member  shall  be  solely  and 
exclusively  through  the  channel  and  process  of  an  assessment 
and  the  amount  of  such  assessment  shall  be  only  his  pro-rata 
share  in  proportion  to  the  amount  of  insurance  carried  and  the 
rate  on  the  same  of  all  losses  and  expenses,  making  reasonable 


OF  MUTUAL  INSURANCE 


471 


allowance  and  deduction  for  uncollectible  and  unpaid  assess- 
ments. 

Section  13.  Payment  of  Losses.  Losses  shall  become  due 
and  payable  in  sixty  days  after  their  adjustment.  Said  adjust- 
ment shall  be  made  within  sixty  days  after  losses  occur. 

Section  14.  Arbitrators.  In  the  event  of  a dispute  between 
the  Company  and  a member  respecting  whether  there  has  been  a 
loss,  and  the  adjustment  of  the  same,  the  matter  shall,  at  the 
request  of  the  Company,  or  such  member,  be  submitted  to  arbi- 
trators, one  of  whom  shall  be  selected  by  the  Company  and  one 
by  the  member,  and  such  two  so  chosen  shall  select  a third,  all 
of  whom  shall  be  disinterested  and  shall  take  and  subscribe  to 
an  oath  to  that  effect.  A decision  of  a majority  shall  be  final 
and  binding  on  all  parties. 

Section  15.  Cancellation.  Any  member  of  such  Company 
may  withdraw  therefrom  at  any  time  by  giving  the  Company 

notice  thereof  in  writing  and  paying  his  or  her  share  of  all 

claims  or  liabilities  for  losses  or  expenses  then  existing  against 
the  Company,  surrendering  his  or  her  policy  and  paying  such 
cancellation  fee  as  may  be  provided,  not  exceeding  $1.00;  and 
the  Board  of  Directors  may  provide,  in  case  the  sum  collected 
at  the  time  the  member  takes  out  insurance  is  such  as  to  justify 
for  a reasonable  short  rate  return  premium,  and  the  action  of  the 
Board  of  Directors  in  that  respect  shall  be  final ; but  no  member, 
his  or  her  heirs,  executors,  administrators  or  assigns,  can  avoid 
liability  to  such  Company  for  their  pro  rata  share  of  the  unpaid 
claims  against  the  Company  accuring  while  a member.  Such 

Company  may  for  good  and  sufficient  reasons  apparent  to  it, 

cancel  any  policy  by  giving  the  member  notice  to  that  effect  and 
releasing  him  or  her  from  further  assessments  and  thereupon 
such  member  shall  send  in  his  or  her  policy  to  the  Company. 

Section  16.  Bodies  Corporate.  Such  Companies  shall  be 
deemed  bodies  corporate  with  succession  and  shall  possess  the 
usual  powers  and  privileges  and  be  subject  to  the  usual  duties 
of  corporations  within  the  liminations  of  this  act,  and  such 
corporations  may  purchase,  own,  hold,  lease,  encumber,  and 
convey  such  real  estate  severally  or  jointly  with  others  as  may 
be  necessary  for  its  present  and  prospective  use  as  offices  and 
place  of  business. 

Section  17.  Annual  Statement.  It  shall  be  the  duty  of  the 
president  and  secretary  to  prepare  annually,  under  oath,  a 
full  and  complete  statement  of  the  condition  of  the  Company 
on  the  31st  day  of  December  each  year,  and  present  the  same  at 
the  annual  meeting  of  the  members. 

Section  18.  Certificates.  It  shall  be  the  duty  of  such  Com- 
pany to  file  an  annual  statement  with  the  proper  insurance 


472 


A HAND  BOOK 


department  of  this  state  not  later  than  the  31st  day  of  January 
of  each  year,  on  blank  furnished  by  said  insurance  department. 
Such  department,  if  it  thinks  necessary,  or  one  deputized  by  it, 
having  no  interest  in  an  insurance  company  and  unprejudiced, 
may  make  an  examination  into  the  affairs  of  such  company  and 
for  such  purposes  shall  have  access  to  all  the  books  and  files 
of  the  company,  and  may  examine  the  officers  and  other  wit- 
nesses under  oath.  If  such  Company  is  doing  business  in 
accordance  with  and  under  the  provisions  of  this  act,  is  solvent 
and  properly  managed,  the  insurance  department  shall  furnish 
such  company  and  its  authorized  agents  a certificate  stating 
that  such  Company  has  complied  with  the  provisions  of  this  act 
and  is  authorized  to  do  business  for  the  ensuing  year  unless 
certificate  is  sooner  revoked.  If  upon  such  examination  it  shall 
appear  to  such  department  that  the  condition  of  such  Company 
does  not  justify  its  continuing  in  business,  it  may  apply  to  the 
District  Court  of  the  County  where  the  principal  office  of  such 
Company  is  located  for  an  order  requiring  such  Company  to 
show  cause  why  it  should  not  be  closed.  For  examining  the 
Company’s  annual  report  and  issuing  certificate  it  shall  be  paid 
$ and  for  each  agent’s  certificate  $ 

Section  19.  Penalties.  It  shall  not  be  lawful  for  any  com- 
pany or  agent  to  do  business  without  authority  given  them  by 
the  Insurance  Department.  Any  person  who  shall  act  or  at- 
tempt to  act  for  or  on  behalf  of  any  company  in  any  capacity 
as  agent,  officer  or  otherwise,  in  the  procuring  or  attempting  to 
procure  or  solicit  business  without  said  Company  having  first 
complied  with  the  provisions  of  this  act,  (except  soliciting  the 
original  signatures  to  the  articles  of  incorporation  and  applica- 
tions for  membership  necessary  to  organize  a company),  shall, 
on  conviction  thereof,  be  found  guilty  of  a misdemeanor  and  be 
fined  in  any  sum  not  exceeding  $500.00  or  committed  to  the 
county  jail  not  exceeding  six  months,  or  both  such  fine  and 
imprisonment. 

Section  20.  Accepting  this  Act.  Any  mutual  company  now 
doing  business  in  this  state  under  any  of  the  provisions  of  the 
law  thereof,  with  the  written  consent  of  a majority  of  the  mem- 
bers, may  accept  the  conditions  of  this  act  and  thereupon  be 
governed  by  it.  Before  such  company  shall  be  entitled  to  the 
benefits  of  this  act,  it  shall  file  with  the  Insurance  Department 
its  articles  of  incorporation  and  by-laws  and  record  a certified 
copy  thereof  as  provided  in  Section  2 of  this  act. 

Section  21.  All  acts  and  parts  of  acts  in  conflict  with  the 
provisions  of  this  act  are  hereby  repealed  in  so  far  as  they  effect 
any  Company  or  Companies  hereafter  organized  under  or  taking 
advantage  of  this  act. 


OF  MUTUAL  INSURANCE 


473 


Section  22.  Whereas  an  emergency  exists  this  act  shall 
take  effect  and  be  in  force  from  and  after  its  passage  and  ap- 
proval. 

F.  L.  Armstrong,  State  Agent,  writes  as  follows: 

In  regard  to  the  matter  of  getting  our  law  through,  will 
say  that  while  the  present  management  of  our  company  were 
the  only  ones  who  worked  on  the  bill  in  the  Lobby  of  the  Sev- 
enth Legislature,  nevertheless,  Judge  Coffin  deserves  great 
credit  both  for  his  service  in  drafting  the  law,  and  also  for  his 
assistance  in  securing  the  signature  of  the  Governor  for  the 
same.  The  Judge  rendered  us  every  possible  assistance  in  his 
power  and  would  have  done  more,  had  it  been  necessary.  He 
very  thoughtfully  telegraphed  the  Governor  requesting  his 
signature  to  the  bill,  which  fact,  I think,  was  of  very  great 
assistance  to  us.  He  is  ever  ready  to  advise  us  and  assist  us  in 
every  way  possible  since  our  organization  and  that  we  feel  very 
grateful  to  him  for  the  same. 

At  the  National  Convention  of  Mutual  Insurance  Companies 
held  in  Indianapolis  the  Legislative  Committee  who  had  in 
charge  the  drafting  of  a law  which  it  was  proposed  to  pass  in 
the  various  states  reported  fully.  And  thereafter  the  State  of 
Idaho  during  the  session  in  1903  passed  a statute  which  is 
nearly  identical  with  the  law  proposed  by  the  National  Conven- 
tion. 

ILLINOIS. 

The  report  of  the  State  Superintendent  for  1904  gives  the 


following  statistics  of  the  Mutuals. 

12  District  Fire  Companies,  total  at  risk $ 24,361,468.44 

53  County  Fire  Companies,  total  at  risk 58,163,410.54 

144  Township  Fire  Companies,  total  at  risk 92,475,710.32 


Total  $175,000,589.30 

4 County  Windstorm  Companies $ 779,894.00 

7 District  Windstorm  Companies  9,439,623.00 


Total  $185,220,106.20 

There  are  also  11  State  Mutuals  with  risks  of $91,655,343.60 


Total  $276,875,449.60 


THE  ILLINOIS  MUTUAL  SYSTEM. 

Illinois  has  no  distinctive  mode  of  operating  different  from 
that  of  most  of  the  central  western  states,  so  that  while  I speak 
more  directly  of  Illinois,  yet  what  is  said  of  our  great  prairie 
state,  will  apply  to  a large  proportion  of  the  companies  of  the 
middle  west. 


474 


A HAND  BOOK 


In  Illinois  we  have  at  present  214  Farmers’  Mutual  Com- 
panies, besides  some  eight  or  ten  Mutuals  whose  business  is 
limited  to  some  special  industry.  Of  the  Farmers’  Mutuals 
some  ten  or  twelve  are  organized  under  special  charters  granted 
directly  by  the  Legislature.  All  the  others  are  operating  under 
some  one  of  the  special  acts  of  the  Legislature. 

To  understand  the  peculiarities  of  these  statutes,  it  must  be 
remembered  that  every  act  or  amendment  thereto,  has  been 
secured  by  the  Farmers  in  a contest  with  the  lobby  of  the  old 
line  companies.  And  it  has  been  only  an  occasional  session 
that  would  grant  us  anything,  and  even  then  it  would  be  in  a 
compromise  or  trade. 

The  line  of  attack  of  the  Old  Line  Lobby,  when  they  saw 
that  we  were  to  be  favored  with  favorable  legislation,  would  be 
to  so  restrict  our  territory  or  the  functions  of  the  company,  as 
to  make  them  failures,  or  of  little  consequence. 

In  spite  of  this  organized  opposition,  we  have  secured 
a fairly  good  code  of  laws,  and  our  growth  and  present  standing 
in  public  esteem,  under  such  unfavorable  circumstances  is  really 
phenomenal. 

The  very  limitations  and  restrictions  placed  on  the  farmers 
Mutuals,  has  made  them  more  purely  mutual  than  can  easily 
be  found  under  any  other  system  that  I know  of. 

The  form  of  law  most  usually  used  is  what  is  known  as 
the  “ Township  Mutual  Insurance  Act.”  Under  this  act  any 
number  of  persons  not  less  than  twenty-five,  and  having  prop- 
erty aggregating  not  less  than  $50,000  which  they  desire  insured, 
and  located  in  not  exceeding  twelve  townships,  may  organize 
and  conduct  an  insurance  company  on  the  assessment  plan. 

Such  company  must  confine  its  business  to  farm  property, 
farm  churches,  school  houses  and  town  halls.  The  term  of 
insurance  cannot  exceed  five  years.  Power  is  given  the  direc- 
tors to  levy  assessments,  prorata,  on  their  members  for  actual 
losses  and  legitimate  expenses  only.  And  it  is  made  obligatory 
on  them  to  do  so.  No  provision  is  made  for  the  creation  of  a 
permanent  fund,  and  under  its  operation  no  fund  of  any  magni- 
tude can  be  accumulated.  The  whole  capital  stock  of  such 
companies  consists  of  their  power  to  levy  assessments  on  their 
members  for  actual  expenses  and  losses.  A sworn  report  is  re- 
quired to  be  made  once  a year  to  the  Superintendent  of  Insur- 
ance as  a condition  for  the  renewal  of  license  to  do  business. 

These  are  the  distinguishing  features  of  the  “Illinois 
Plan,”  and  while  the  plan  has  its  disadvantages,  it  also  has 
much  that  may  be  said  in  its  praise.  It  would  be  hard  to  con- 
ceive of  a more  purely  mutual  plan.  Its  management  is  along 
simple  democratic  lines,  its  members  all  have  a vote  in  propor- 


OF  MUTUAL  INSURANCE 


475 


tion  to  their  insurance.  There  is  no  temptation  for  treasurers 
to  abscond,  or  officers  to  conspire  to  defraud.  Every  member 
may  know  where  every  cent  collected  goes  to,  both  from  the 
Secretary’s  annual  report  to  the  Company,  and  from  sworn 
report  to  the  Superintendent  of  Insurance,  which  is  published 
for  general  circulation. 

A.  T.  STRANGE, 
Walsh ville,  Illinois. 

INDIANA. 

The  progress  of  Mutual  Insurance  in  Indiana  is  retarded 
by  restrictive  laws.  Laws  will  probably  be  passed  allowing  the 
Mutuals  to  cover  more  territory  and  also  requiring  them  to  re- 
port to  the  State  Department  of  Insurance.  Then  the  disadvant- 
ages of  the  present  chaotic  condition  will  be  done  away  with. 
The  companies  are  all  doing  good  work  but  their  sphere  of  use- 
fulness should  be  extended. 

The  Indiana  Mutuals  have  a wide  awake  and  effective  state 
organization.  Its  membership  is  not  what  it  should  be.  This 
Is  to  be  accounted  for  by  the  fact  that  many  of  the  Indiana 
Mutuals  are  old  established  and  successful.  They  cover  their 
field,  do  all  the  business  they  wish  and  give  excellent  satisfac- 
tion. They  have  very  little  need  for  outside  help  and  do  not 
care  to  trouble  themselves  about  state  conventions  and  such 
matters.  While  this  is  true,  if  all  the  Indiana  Mutuals  were 
allied  the  working  force  of  the  state  would  be  materially 
strengthened  and  the  influence  in  favor  of  co-operation  would 
be  greatly  increased,  and  their  combined  force  would  enable 
them  to  procure  almost  any  legislation  they  desired. 

Some  of  the  companies  have  a novel  feature,  and  one  that 
is  evidently  useful.  They  issue  to  members  a short  time  insur- 
ance on  harvested  crops.  Some  companies  have  a special  policy 
and  others  use  slips  to  be  attached  to  the  policy  already  in  force. 
In  either  case,  they  run  as  long  as  needed  and  then  a settlement 
is  made  with  the  company. 

Many  companies  are  not  even  incorporated  and  cannot  sue 
and  be  sued,  but  all  seem  to  be  successful  and  no  failures  among 
them  have  been  heard  of  for  several  years. 

A number  of  the  Farm  Mutuals  of  Indiana  are  old  organiza- 
tions and  are  still  working  under  their  original  charters.  There 
seems  to  be  very  little  uniformity.  Mr.  H.  L.  Nowlin,  of  Law- 
renceburgh,  the  Secretary  of  the  Farmers’  Mutual  Insurance 
Companies  Union  of  Indiana  says: 

“I  send  you  by  this  mail  a report  of  the  last  annual  meet- 
ing of  our  State  Ins.  Union  and  also  a list  of  all  the  companies 


476 


A HAND  BOOK 


in  the  state  who  do  not  belong  to  the  Union  so  far  as  I have  been 
able  to  ascertain.  No  reports  are  made  to  any  authority  of  the 
state  and  I know  there  are  fully  twice  as  many  Mutual  Com- 
panies in  Indiana  as  I have  on  this  list.  I have  exhausted  every 
means  that  I know  of  to  secure  names  of  companies  but  have 
failed  in  part.  Companies  are  organized  in  so  many  different 
ways  and  have  so  many  methods  that  I can  give  you  but  little 
information.  ’ ’ 

The  report  contains  statistics  of  twenty-five  companies  hav- 
ing a total  risk  of  nearly  forty-eight  millions.  It  is  an  inside 
estimate  that  this  is  only  a fourth  of  the  Farm  Mutuals  insur- 
ance of  the  state.  The  Class  Mutuals  have  over  thirteen  millions 
at  risk. 


IOWA. 

Iowa  is  another  state  in  which  the  Mutuals  are  steadily 
absorbing  the  fire  insurance  business  at  a rate  which  will  soon 
bring  them  to  the  front  rank. 

The  Mutuals  of  Iowa  have  made  a stubborn  fight  and  have 
made  good  progress.  They  have  been  annoyed  by  misrepre- 
sentation from  the  opposition  and  by  the  odium  arising  from 
counterfeit  mutuals  at  home.  But  their  tribulations  are  past, 
and  the  Mutuals  now  have  the  confidence  of  the  people  and  are 
getting  their  business. 

The  following  from  the  address  of  the  Hon.  J.  A.  Swallow, 
before  the  State  Association  of  Mutual  Insurance  Companies, 
November  1904,  is  an  excellent  account  of  conditions  in  Iowa. 

At  the  present  time  there  are  154  county  mutuals,  19 
state  mutuals  doing  a fire  business,  three  state  mutuals  doing 
a tornado  business,  thirteen  mutual  hail  associations,  and  one 
association  insuring  plate  glass  against  accidental  breakage 
other  than  fire ; thus  we  see  that  we  have  in  this  state  190  incor- 
porated mutual  insurance  associations  operating  under  Chapter 
Five  of  the  Code. 

From  President  Brook’s  address  which  he  delivered  before 
this  association  last  year  we  are  permitted  to  quote  that  in  1888 
the  insurance  in  force  in  mutual  associations  in  this  state 
amounted  to  $49,735,098,  and  that  in  that  year  there  were  105 
associations  in  the  state.  When  we  compare  this  with  the  190 
associations  in  the  field  this  year  we  wonder  whether  this  great 
increase  of  associations  is  able  to  carry  the  amount  of  insur- 
ance in  proportion.  We  find  by  the  last  auditor’s  report  that 
the  amount  of  insurance  in  force  in  strictly  mutual  associations 


OF  MUTUAL  INSURANCE 


477 


had  increased  from  $49,735,098  in  1888  to  $392,698,481  and  that 
the  average  amount  carried  in  1888  by  each  association  was 
$474,384,  while  on  January  1,  1904  the  average  amount  carried 
by  each  association  was  $2,082,624.  This  was  a phenomenal 
growth  and  one  that  every  mutual  man  in  the  state  may  feel 
proud  of. 

Taking  our  auditor’s  report  as  our  authority  and  elimin- 
ating the  county  associations  that  write  Tornado  and  those  that 
write  Hail  business  and  we  find  that  the  average  cost  of  county 
associations  writing  nothing  but  a fire  and  lightning  business 
has  been  a little  less  than  two  dollars  per  thousand  of  insurance 
each  year.  Taking  this  as  a basis  it  is  safe  for  us  to  estimate 
that  the  members  of  the  county  associations  have  saved  $525,000 
each  year  and  as  the  state  associations  have  cost  but  75  per  cent 
of  board  or  stock  company  rates  the  members  of  mercantile 
mutuals  have  saved  $117,000  making  a saving  to  members  in  one 
year  of  $642,000. 

Mr.  Swallow  also  writes  that  twenty  companies  have  organ- 
ized as  stock  mutuals  in  this  state;  At  the  present  time  five  of 
them  are  still  doing  business  under  that  law;  four  have  re- 
organized as  Capital  Stock  Companies,  and  eleven  have  failed; 
Three  companies  organized  under  Chapter  Five  but  did  a Chap- 
ter Four  business  and  these  have  also  failed ; two  of  the  mutuals 
that  were  organized  under  Chapter  Four  and  that  are  still 
doing  business  under  that  chapter  are  making  strenuous  efforts 
to  change  to  stock  companies;  There  have  been  twenty-five 
Capital  Stock  Companies  organized  in  this  state  with  capital 
to  the  amount  of  $2,800,000 ; of  these  twelve  are  still  in  business 
while  thirteen  have  failed  and  quit  business,  those  that  failed 
represented  a capital  stock  of  $1,600,000.  As  we  noticed  before 
three  Companies  organized  under  Chapter  Five  but  did  a 
chapter  four  business,  these  companies  were  The  Iowa  Mutual 
Fire  of  Des  Moines;  Mutual  Fire  of  Des  Moines;  Millers  and 
Manufacturers  Mutual  of  Des  Moines. 

The  Fremont  County  Mutual  with  headquarters  at  Ander- 
son commenced  an  organization  and  issued  policies  before  they 
had  sufficient  insurance  in  force  and  were  compelled  to  quit 
business.  The  Montgomery  Mutual  of  Red  Oak  also  commenced 
business  in  the  same  way  and  had  the  same  ending.  The  case 
of  Weiderman  vs.  The  Montgomery  County  Mutual  was  an  out- 
growth of  this  association. 

There  have  been  organized  (aside  from  those  enumerated 
above)  154  County  mutuals,  19  state  mutuals  doing  a fire  busi- 
ness, three  state  mutuals  doing  a tornado  business,  thirteen 
mutual  hail  associations,  and  one  association  insuring  plate 


478 


A HAND  BOOK 


glass  against  accident.  All  these  associations  are  still  in  the 
field  and  doing  a good  healthy  business.  We  have  often  made 
the  statement  (and  it  has  never  been  contradicted),  that  there 
has  never  been  a failure  of  a strictly  mutual  association  in  this 
state,  organized  and  operated  strictly  under  the  law  of  Chapter 
Five  of  the  Code. 

With  such  a record  we  can  see  no  good  reason  why  other 
states  should  bar  mutual  associations  from  doing  business. 

KANSAS. 

16  Mutual  Fire,  Lightning  and  Tornado  Insurance 


Companies,  risks  $ 60,268,230 

13  Mutual  Hail  Companies,  risks  4,114,287 

Total  risks  $64,382,517 


The  early  days  of  Kansas  were  days  of  storm  and  of  war. 
It  may  be  said  that  she  succeeded  in  advertising  herself  in  every 
civilized  country  in  the  world.  Those  who  took  up  claims  or 
went  into  merchandising  were  generally  too  busy  to  pay  much 
attention  to  outside  matters,  and  so  the  schemers  had  full  sway, 
checked  only  by  an  occasional  dose  of  frontier  justice,  admin- 
istered when  conditions  became  intolerable.  Charters  were 
issued  by  the  thousand.  Some  of  these  institutions  were  well 
planned,  many  were  theoretical  ventures,  and  some  were  pure 
frauds.  The  early  history  of  insurance  in  Kansas,  is  colored 
with  the  same  tint.  Nearly  every  kind  of  insurance  has  been 
tried  at  sometime  or  another,  and  like  the  companies  in  other 
lines  some  have  been  successful  and  others  have  failed  or  re- 
tired. Sixteen  Mutuals  and  two  joint  stock  companies,  one  of 
which  was  organized  last  year,  still  survive.  The  record  of 
insurance,  is,  however,  no  worse  than  that  of  organizations  in 
other  lines. 

The  Guarantee  Fund,  as  originally  provided,  was  not  ac- 
ceptable to  the  Mutuals.  It  was  practically  a joint  stock  annex. 
At  the  session  of  1905  this  law  was  amended  as  follows: 

Section  1.  “Section  1 of  Chapter  130  of  the  Laws  of  1885 
is  hereby  amended  so  as  to  read  as  follows:  Section  1.  Any 
Mutual  fire  and  tornado  insurance  company  organized  under 
the  laws  of  this  state,  having  done  business  not  less  than  two 
years  and  having  at  least  one  million  dollars  at  risk,  and  prem- 
ium notes  amounting  to  not  less  than  twenty-five  thousand 
dollars,  may  for  the  better  protection  of  its  policy  holders 
create  a guarantee  fund,  with  the  privilege  of  increasing  it 
from  time  to  time.” 


OF  MUTUAL  INSURANCE 


479 


Section  2.  “Section  2 of  Chapter  No.  30  of  the  Laws  of 
1885  is  hereby  amended  to  read  as  follows:  Section  2.  Any 
such  insurance  company  may  create  such  a guarantee  fund  by 
setting  apart  not  more  than  fifty  per  cent  of  the  excess  of  its 
funds  over  and  above  the  ten  percentum  reserve  required  by 
law  and  the  amount  of  all  current  liabilities  for  losses  and  ex- 
penses, and  such  funds  shall  be  invested  in  mortgages  on  real 
estate  worth  at  least  double  the  amount  loaned  thereon,  or  in 
the  bonds  of  any  county,  school  district,  or  incorporated  city 
issued  under  the  laws  of  this  state  at  their  market  value,  or  in 
United  States  or  state  bonds  at  their  market  value.  The  guar- 
antee fund  of  mutual  companies  shall  be  liable  for  the  claims 
against  the  company  only  after  all  other  resources  have  been 
exhausted. 

Section  3.  “Section  4 of  chapter  130  of  the  Laws  of  1885 
is  hereby  amended  so  as  to  read  as  follows:  Sec.  4.  Mutual 
fire  and  tornado  insurance  companies  having  a guarantee  fund 
as  provided  in  this  act  to  the  amount  of  twenty-five  thousand 
dollars  may  issue  policies  of  insurance  against  loss  or  damage 
by  fire,  lightning,  tornadoes,  and  cyclones,  on  dwellings,  barns, 
sheds,  outbuildings,  hay,  grain,  wool,  and  other  products,  cribs 
and  their  contents,  live  stock,  wagons,  carriages,  harness,  farm 
implements,  machinery,  furniture,  household  goods,  wearing 
apparel,  provisions,  musical  instruments,  and  libraries,  being 
upon  farms  as  farm  property,  or  in  dwellings,  or  in  accom- 
panying outbuildings,  that  constitute  detached  risks  in  towns 
and  villages;  but  shall  issue  no  policy  to  exceed  three  thousand 
dollars  on  and  in  any  one  building,  or  buildings  that  are  exposed 
one  by  the  other,  and  situated  in  the  state  of  Kansas.  A de- 
tached dwelling  as  understood  in  this  section  shall  be  construed 
to  be  a dwelling  not  nearer  that  five  feet  to  any  other  building. 
Mutual  companies  having  a guarantee  fund  of  one  hundred 
thousand  dollars  or  more  may  issue  policies  of  insurance  on  the 
above  described  kinds  of  property  situated  in  or  out  of  the 
state  of  Kansas.  ’ ’ 

Section  4.  “Section  5 chapter  130  of  the  Laws  of  1885 
is  hereby  amended  so  as  to  read  as  follows:  Sec.  5.  Mutual 
fire  and  tornado  insurance  companies  having  a guarantee  fund 
of  not  less  than  twenty-five  thousand  dollars  may  accept  in 
payment  of  premiums  on  their  policies  cash  or  time  notes  pay- 
able at  such  time  and  place  as  provided  in  said  note  or  notes, 
payable  in  assessments,  but  the  members  of  said  companies 
shall  not  be  liable  to  the  companies  or  any  other  person  to  ex- 
ceed the  amount  of  their  premiums  or  premium  notes  and  inter- 
est due  thereon.’ ’ 


480 


A HAND  BOOK 


Mutual  Live  Stock  Companies  are  also  provided  for. 

Hail  companies  pro  rate  when  the  premiums  are  not  suffic- 
ient to  pay  the  losses. 

The  state  has  a valued  policy  law. 

MAINE. 

The  conditions  of  Mutual  insurance  in  the  State  of  Maine 
are  the  most  peculiar  of  any  state  in  New  England,  inasmuch 
as  it  has  practically  no  insurance  companies  that  are  writing  a 
general  business-  such  as  the  Mutuals  in  the  other  New  England 
States  are  doing  at  present. 

December  31st,  last,  there  were  49  mutual  companies 
organized  or  incorporated  under  the  laws  of  the  state  of  Maine, 
transacting  business  in  that  state.  The  history  of  domestic 
mutual  fire  insurance  companies  in  Maine  has  been  that  when 
they  confined  their  business  to  a limited  area,  usually  one  or 
two  towns,  or  sometimes  part  of  several  towns,  and  the  business 
has  been  under  the  supervision  of  a Board  of  Directors  scat- 
tered over  this  territory,  the  companies  have  been  successful 
and  prosperous,  while  disaster  has  overtaken  practically  every 
company  that  has  attempted  to  do  a general  business  by 
agencies. 

Three  of  the  49  companies  mentioned  are  what  is  commonly 
known  in  Maine  as  “Grange”  companies,  for  the  reason  that 
their  membership  is  confined  to  the  members  of  the  Order  of 
the  Patrons  of  Husbandry.  Two  of  these  companies  are  doing 
a general  business  throughout  the  state,  while  the  third  and  the 
new  company,  I think,  confines  its  operations  practically  to 
Aroostook  County. 

They  are  all  doing  a successful  and  prosperous  business. 

The  Mutual  Fire  Insurance  Company  of  Saco  has  a surplus 
of  about  $90,000,  and  does  business  on  substantially  the  same 
rates  as  the  stock  companies.  I have  the  impression,  however, 
that  its  business  is  confined  exclusively  to  real  estate,  and  that 
no  personal  property  is,  under  any  circumstances,  insured. 

The  Dirigo  Mutual  of  Gorham  is  writing  a portion  of  its 
business  upon  what  is  called  the  cash  plan,  charging  substanti- 
ally the  same  rate  as  the  stock  companies,  and  taking  a premium 
note  for  an  equal  amount.  This  company  has  been  in  operation 
but  a few  years  and  has  written  a large  volume  of  business, 
practically  all  of  which,  until  within  the  past  year,  has  been 
upon  the  note  plan.  Under  the  Maine  law  a company  must  take 
a premium  of  at  least  5 per  cent,  and  such  part  of  it  as  the 
directors  may  determine  must  be  immediately  paid  and  endorsed 
thereon,  unless  the  company  elects  to  charge  a stock  rate  and 


CHAS.  S.  GRISSEN,  McMINNVILLE,  OREGON. 

Mr.  Grissen  is  the  President  of  the  Oregon  Fire  Relief  Asso- 
ciation. It  has  been  in  existence  long  enough  to  be  thoroughly 
tested  and  has  now  the  confidence  of  the  people  of  Oregon.  It 
is  Mr.  Grissen’s  pride  and  to  it  he  is  devoting  the  energies  of  his 
life. 


J.  Y.  M.  SWIGART,  LINCOLN,  NEBR. 

Mr.  Swigart  first  engaged  in  Insurance  work  in  Iowa.  In  1891 
he  organized  the  Lancaster  County  Mutual,  in  Nebraska  and  la- 
ter the  Nebraska  Mutual  and  became  the  secretary  of  both.  In 
1897  the  town  law  was  passed  and  the  Dwelling  House  Mutual 
was  launched  with  Mr  Swigart  for  secretary,  he  having  retired 
from  the  County  Company  after  six  years  of  faithful  service. 
Mr.  Swigart  is  now  retired,  but  has  not  lost  his  interest  in  Mutual 
Insurance. 


OF  MUTUAL  INSURANCE 


481 


take  a premium  note  for  an  equal  amount,  in  which  case  it  is 
required  to  maintain  as  reserve  50  per  cent  of  the  cash  prem- 
iums on  its  policies  in  force.  The  bulk  of  the  business  trans- 
acted by  these  companies  in  the  state  of  Maine  is  therefore 
upon  what  is  known  as  the  premium  note  plan.  These  notes 
vary  in  amount  from  5 per  cent  to  15  per  cent,  seldom,  however, 
running  over  10  per  cent.  The  principal  source  of  revenue  of 
these  companies  is  their  policy  fees,  the  cash  premiums  or  per- 
centage of  the  premium  note  which  is  paid  at  the  time  the 
policy  is  issued,  and  their  assessments  upon  the  notes  of  such 
amounts  as  are  necessary  to  pay  the  losses  and  expenses. 

Patrons  of  these  corporations  are  securing  their  insurance 
at  surprisingly  low  rates,  and,  as  indicated  in  the  opening  of 
this  communication,  the  business  has  usually  been  success- 
fully conducted.  Some  of  the  companies  transacting  business 
on  the  note  plan  have  not  made  an  assessment  upon  the  policy- 
holders for  more  than  fifteen  years. 

These  companies,  December  31,  1904,  had  at  risk,  $9,381,880. 
They  collected  during  the  year  in  cash  premiums,  $35,680.38 
and  for  policy  fees,  $3,370.30.  They  assessed  their  policy 
holders,  $59,668.64,  and  losses  paid  were  $79,277.62. 

MARYLAND. 

Corporations,  in  Maryland,  are  organized  under  a general 
law,  subject  only  to  such  rules  and  regulations  as  may  be  neces- 
sary for  the  public  safety.  They  are  subject  to  strict  super- 
vision, but  so  long  as  they  are  safely  managed  they  arrange 
business  details  to  suit  themselves. 

December  31,  1903,  the  Commissioner  of  Insurance  reported 
fifteen  Maryland  Insurance  Companies,  eight  joint  stock  and 
seven  Mutual.  During  1904,  one  small  joint  stock  company 
retired  for  reasons  not  given,  four  other  joint  stock  companies 
and  two  Mutuals  were  put  out  of  business  by  the  Baltimore 
Fire. 

That  is  the  disasters  among  the  old  line  companies  were 
more  than  twice  as  many  as  those  among  the  Mutuals. 

One  Mutual,  the  old  Baltimore  Equitable,  paid  conflagra- 
tion losses  to  the  amount  of  $1,915,517,  and  this  without  inter- 
rupting its  business  in  the  least.  It  still  has  a surplus  of  $489,- 
230.  The  two  Mutuals  which  failed  were  doing  a large  business 
in  Baltimore.  Statistics  of  their  condition  are  not  given  by 
the  Commissioner  as  their  reports  on  file  were  burned  in  the 
great  fire.  The  four  joint  stock  companies  would  have  been 
pronounced  absolutely  safe  before  the  fire.  Their  capitals 
30 


482 


A HAND  BOOK 


were  sound  and  they  had  each  a good  surplus.  But  they  went 
under.  The  score  at  Baltimore  is  two  to  one  in  favor  of  the 
Mutuals,  so  far  as  Maryland  companies  are  concerned.  With 
regard  to  outside  companies  there  were  several  wrecks  among 
the  joint  stock  companies.  This  is  mentioned  not  so  much  as  a 
matter  of  comparison  with  Mutuals,  as  to  show  that  among  the 
old  line  companies  doing  a general  business  no  policy  holder 
can  be  sure  of  safety  unless  he  knows  that  the  insurance  is  so 
scattered  that  conflagration  losses  are  not  possible. 

When  this  fire  occurred,  one  old  line  journal  remarked  that 
the  Mutuals  were  gone  for  good  and  this  statement  was  copied 
all  over  the  country.  It  was  uncalled  for  and  untrue. 

MASSACHUSETTS. 

BRIEF  HISTORY  OF  MUTUAL  UNDERWRITING,  BY  ROGER  F.  UPHAM. 

The  circumstances  out  of  which  the  mutual  fire  insurance 
companies  of  Massachusetts  emerged  may  be  stated  as  follows: 

The  frame  character  of  the  towns  and  small  cities,  which 
then  was  characteristic  of  Massachusetts,  made  the  ravages  of 
fire  unavoidable.  No  hydrant  or  other  protective  system  existed 
save  the  hand-bucket  brigades,  which  were  organized  in  many 
towns,  notably  in  Worcester,  and  which  provided  their  mem- 
bers with  a leather  bucket,  a cloth  bag,  a bed-wrench,  and  a 
screw-driver.  Whenever  a fire  was  discovered  the  summons 
brought  out  the  members,  each  equipped  for  fire  service,  the 
cloth  bag  serving  to  carry  out  breakable  articles.  These  brigades 
were,  moreover,  something  of  the  nature  of  a social  club,  at 
certain  meetings,  and  as  the  necessity  of  providing  something 
beyond  the  opening  of  public-spirited  purses  and  the  lending  of 
strong,  willing  arms  for  rebuilding,  became  apparent,  the  logical 
sequence  was  to  mass  the  hazards  in  a mutual  agreement  to  bear, 
upon  a certain  consideration,  the  misfortunes  of  a community. 
Besides,  mortgages  required  some  form  of  insurance  to  serve  as 
protection  to  the  collateral,  and  this  probably  finally  crystallized 
the  Worcester  Mutual  Fire  Insurance  Company,  the  first  outside 
of  Boston. 

At  the  beginning  some  mutuals  charged  a certain  percent- 
age, taking  therefrom,  say  5 per  cent  in  cash  and  assessing  on 
the  balance  as  losses  required,  while  others  charged  a cash 
premium  upon  agreed  rate  per  cent,  and  to  have  the  insured 
recognize,  by  note  of  hand,  or  by-law  and  policy  agreement,  an 
obligation  for  the  same  amount,  or  more,  as  the  company's  by- 
law might  be,  to  be  assessed  in  event  of  loss  necessity.  The 
term  of  insurance  was  1-3-5-7  years,  usually  seven  years  upon 


OF  MUTUAL  INSURANCE 


483 


dwellings,  at  a maximum,  shortened  finally  to  five  years,  the 
maximum  of  today,  and  a term  limited  almost  absolutely  to 
residential  property.  The  hazards  were  limited  to  fire  and  light- 
ning; no  wind,  cyclone,  or  hail  insurance  being  issued.  The 
rates  then  as  now  were  some  higher  than  the  stock  rates.  As  an 
illustration,  the  rate  on  protected  dwellings  in  stock  companies 
being  on  an  average  $7.50  on  the  thousand  dollars  for  five  years 
while  the  mutual  rate  is  $12.50  for  five  years  per  one  thousand 
dollars,  and  on  rated  risks  a differential  rate  is  established  over 
the  stock  rate,  which  will  be  mentioned  later  in  this  paper. 
The  Massachusetts  laws  and  state  inspections  have  made  no 
discrimination  against  the  mutual  system,  but  a spirit  of  fair- 
ness and  impartiality  has  existed  which  has  tended  to  far  better 
results  for  the  entire  community  than  would  otherwise  have 
been  possible. 

The  early  practical  history  of  mutual  insurance  had  to  do 
largely,  if  not  mainly,  with  farming  interests,  and  in  the  various 
counties  mutual  companies  were  formed  (in  all  30).  With 
scarcely  an  exception  they  continue  to  the  present,  having  been 
of  immense  benefit  to  the  state,  money  savers  to  the  policy 
holders,  and  a bulwark  between  the  policy  holder  and  what 
might  prove  otherwise  an  opportunity  for  extortion  by  other 
classes  of  companies. 

The  first  forty  or  fifty  years  the  field  was  almost  entirely 
clear  of  competitors,  and  the  pathway  comparatively  smooth. 
Farming  was  successful  and  town  and  city  insurance  grew 
apace,  the  mode  of  heating  and  lighting  simple  and  safe-guarded 
by  rigid  care.  Fires  were  rare  and  the  underwriting  margin 
therefore  excellent.  The  Boston  fire  of  1872,  following  on  the 
heel  of  the  Portland  conflagration,  was  the  first  warning  of 
danger  from  congested  lines  of  insurance  in  New  England. 
The  Massachusetts  mutual  companies  had  been  great  favorites 
in  Boston — the  area  covered  by  the  fire  waste  of  large  extent — • 
the  losses  unparalleled,  but  the  managers  of  the  companies  inter- 
ested bravely  battled  with  the  exceedingly  difficult  circumstances 
and  won  out. 

But  at  this  point  the  history  of  mutual  fire  insurance  in 
Massachusetts  assumes  a different  cast.  The  possibility  of  an 
assessment  was  wrung  in  infinite  changes  to  frighten  policy  hold- 
ers from  mutual  ranks,  and  it  took  years  before  the  people  were 
really  educated  to  see  that  the  assessment  bug-bear  is  one  of  the 
strongest  supports  of  a mutual  company,  as  it  in  reality  makes 
a mutual  fire  insurance  company  perennial,  the  wiping  of  its 
funds,  which  in  the  case  of  a stock  company  closes  its  history, 
in  a mutual  company  furnishes  a fund  to  reinstate  it. 


484 


A HAND  BOOK 


The  four  dominant  factors  which  contribute  to  the  suc- 
cess of  Mutual  Underwriting  in  Massachusetts  are: 

First:  The  formation  of  the  Massachusetts  Mutual  Fire 
Insurance  Union. 

In  1879  the  managers  of  two  or  three  insurance  companies 
conceived  the  idea  of  forming  an  organization  which  should 
bring  together  all  mutual  companies  writing  dwelling  house  and 
mercantile  risks  for  the  purpose,  as  stated  in  the  preamble,  “of 
considering  all  matter  affecting  mutual  companies  and  adopting 
such  measures  as  would  work  for  the  benefit  of  that  system  of 
insurance — for  social  and  fraternal  purpose,  to  the  end  that 
peace,  harmony,  and  good-fellowship  may  hereafter  prevail.” 

Successive  meetings  proved  so  profitable  that  it  was  only 
a few  years  before  all  the  prominent  mutuals  (except  the  mill 
mutuals  who  had  an  organization  of  their  own)  were  enrolled 
as  members,  taking  part  in  its  work  and  deliberations.  Rates 
were  made,  agreements  entered  into,  and  a more  systematic 
method  of  doing  business  adopted,  which  has  universally  com- 
mended itself  to  the  executive  officers  and  policy  holders.  This 
was  called  the  “Massachusetts  Mutual  Fire  Insurance  Union.” 

At  first  quarterly  meetings  only  were  held.  Later  it  was 
found  advantageous  to  meet  weekly. 

Committees  on  luminants,  rates,  inspections,  special  con- 
ference, towns,  and  fire  protection  were  appointed.  Books  of 
mutual  rates  and  instructions  with  special  slips  of  changes 
maintained  and  concerted  efforts  toward  securing  wise  and  in- 
telligent legislative  action  arranged  for,  with  recommendations 
unifying  to  a great  extent  rules,  permits1,  and  practices  through- 
out the  field.  In  fact  this  state  organization  of  Massachusetts 
mutuals  has  been  singularly  advantageous  and  serviceable,  as 
will  be  seen  by  the  growth  of  the  business  of  the  companies 
forming  the  union  in  comparative  figures  for  the  twenty- three 
years*jof  existence  to  this  year  prepared  by  the  secretary  as  fol- 
lows: 


1879  1904 

At  risk  $181,029,381  $451,486,355 

Assets  4,531,863  7,545,838 

Liabilities  (re-insurance  fund) 2,143,053  3,658,563 

Income  1,257,167  2,358,177 

Premiums  received  annually  about  . . 1,014,126  2,008,795 

Dividends  paid  468,156  867,944 

Losses  paid 381,885  639,209 

The  making  of  rates,  based  upon  careful  classification,  the 
combining  of  experience  from  field  work,  the  noting  and  advising 
protection,  water  supply,  and  increased  fire-fighting  facilities 
of  towns  under  a collective  management  advanced  the  interests 


OF  MUTUAL  INSURANCE 


485 


of  the  companies.  Each  company  being  loyal  to  the  basis  of 
rate  gave  stability  to  prices  for  insurance  and  won  the  respect 
of  the  insuring  public.  The  same  forms,  privileges,  permits, 
and  endorsements  gave  also  opportunity  for  large  insurers  to 
place  heavy,  current  lines,  with  practically  one  insurer  to  deal 
with,  the  whole  union  taking  the  burden  but  sharing  the  re- 
sponsibility by  separate  policies,  the  negotiation  of  the  line  and 
settlement  of  loss  being  thus  brought  to  a minimum. 

Each  year  has  noted  more  excellence  and  more  thoughtful- 
ness in  the  service  of  the  mutual  union  to  the  various  com- 
panies. 

Second:  The  Dividend  Record. 

The  excellent,  steady  dividend  payments  which  have  been 
maintained  have  been  a great  source  of  benefit  to  mutual  insur- 
ance. 

The  Massachusetts  mutuals,  outside  of  the  mill  mutuals, 
pay  what  is  sometimes  styled  a set  or  stated  dividend,  or  what  is, 
in  fact,  a return  of  part  of  the  premium.  That  is,  instead  of 
changing  the  scale  of  dividends  each  month  according  to  the 
loss  and  income,  they  establish  and  pay  a dividend  which  their 
experience  has  shown  they  will,  on  an  average  loss  ratio,  be 
able  to  pay  year  in  and  year  out,  and  so  continue  for  a series 
of  years.  The  standard  mutual  dividend,  as  it  exists  to-day,  is 
20  per  cent  of  the  premium  on  one-year  policies,  40  per  cent 
three  year  and  60  per  cent  five  year  policies;  and  this  has  been 
the  rule  for  years,  so  new  insurers  know  practically  what  the 
net  cost  will  be,  and  can  compare  their  chances  to  insure  in  the 
market  and  decide  which  to  buy,  whether  a stock  or  mutual 
policy. 

This  has  worked  excellently,  and  while  a specially  heavy 
drain  of  losses  may  temporarily  compel  a reduction,  generally 
speaking  the  dividends  are  very  stable. 

A differential  rate  is  made  over  stock  companies’  tariff  by 
agreement  with  the  New  England  Insurance  Exchange  to  act  in 
harmony  with  them,  thus  avoiding  all  unnecessary  friction,  of 
20  per  cent  on  three  year  terms  and  30  per  cent  on  five  year 
terms,  so  far  as  rated  risks  are  concerned,  which  helps  out  the 
dividend  account  just  so  much. 

Most  of  the  business  in  Massachusetts  mutuals  is  brought 
to  them  by  agrents  and  brokers  on  a 15  per  cent  commission 
basis,  and  in  New  England  this  has  become  so  generally  the 
practice  that  any  other  method  would  seem  to  be  suicidal.  The 
Massachusetts  state  legislature  makes  $10  the  license  fee  for 
brokers,  and  declares  that  all  veterans  of  the  civil  war  can  have 
a broker’s  license  free,  and  it  looks  as  though  the  Cuban  war 


486 


A HAND  BOOK 


veterans  would  have  the  same  chance.  This  makes  it  easy  for 
numbers  to  go  into  the  insurance  field  as  solicitors,  and  their 
constant  hunt  for  risks  heads  off  insurers  who  would  otherwise 
quite  likely  prefer  to  deal  directly  over  the  counter  with  some 
official  of  the  company. 

Third:  The  Permanent  Fund  Feature. 

Another  feature  of  Massachusetts  mutuals  which  has  been 
of  unquestionable  service  in  their  growth  is  the  permanent-fund 
so-called,  established  by  act  of  legislature.  This  act  corrected 
two  important  elements  of  weakness  in  mutuals:  first,  it  pro- 
vided a chance  of  a strong  financial  basis,  meeting  the  opposi- 
tion to  mutuals  on  the  ground  that  they  were  financially  weak 
as  compared  with  stock  companies  with  large  capital;  secondly, 
it  did  away  with  the  danger  which  menaced  the  companies — that 
policy  holders  could  petition  court  for  the  dispersion  of  any 
undivided  surplus  which  happened  to  occur  over  the  re-insur- 
ance fund  and  so  practically  close  doors. 

The  legislature  declared  that  the  surpluses  or  net  assets 
held  by  the  Massachusetts  mutuals  as  of  1890  should  be  held 
by  them  as  a permanent  fund  and  that  thereafter  20  per  cent 
of  the  net  profits  of  each  year  could  be  added  to  the  permanent 
fund  until  the  aggregate  amounted  to  2 per  cent  of  the  total 
amount  at  risk.  For  instance,  if  a company  was  carrying 
$40,000,000  at  risk,  they  could  accumulate  under  this  privilege 
of  law  and  hold  $800,000  as  a permanent  fund.  The  balance 
over  and  above  the  20  per  cent  was  to  be  divided  in  extra  divi- 
dends in  five  year  periods.  This  latter  clause,  however,  was 
amended,  so  instead  of  20  per  cent,  such  amount  as  the  directors 
deem  fit  may  be  added  until  said  limit  is  reached. 

This  permanent  fund  can  be  used  for  the  payment  of  losses 
and  expenses  when  the  funds  of  the  company  are  not  sufficient, 
so  that  the  permanent  fund  is  a strong  tower  of  security  to  the 
policy  holder. 

The  permanent  funds  of  the  Massachusetts  mutuals  run 
from  less  than  one  hundred  thousand  dollars  to  nearly  half  a 
million.  No  policy  holder  has  expressed  other  than  satisfaction 
that  thus  a certain  moiety  of  his  premium  has  added  strength 
to  the  company  against  his  own  or  future  policy  holder's  needs. 

Fourth : The  Standard  Form  of  Policy. 

The  standard  form  of  policy  which  was  adopted  by  the 
Massachusetts  legislature  to  be  used  uniformly  by  both  stock 
and  mutual  companies  some  twenty-five  years  ago  has  been  an 
excellent  basis  for  an  insurance  contract.  A mutual  officer,  one 
of  the  present  members  of  the  mutual  union,  with  a director  of 
the  same  company,  each  men  of  broad  and  long  continued  ex- 


OF  MUTUAL  INSURANCE 


487 


perience  were  in  the  main  apparently  responsible  for  its  excel- 
lent conditions  and  for  its  final  adoption — its  fairness  toward 
policy  holders,  its  arbitration  clause  which  has  obviated  law- 
suits, its  protection  of  mortgages  has  contributed  very  largely 
to  the  harmony,  satisfaction,  and  stability  of  the  conduct  of  the 
business.  Through  over  twenty  years  of  struggle,  often  under 
trying  and  exasperating  conditions,  although  occasionally  as- 
sailed by  some  legislators,  the  good  sense  and  admirable  work- 
ing of  the  contract  have  permitted  hardly  a change  since  its 
adoption. 

Fifth : The  Outlook. 

These  four  elements  therefore  account  largely  for  the  suc- 
cess of  the  mutual  principle  in  Massachusetts,  always  coupled 
with  the  effort  to  keep  heart  and  brain  active  for  the  best  ser- 
vice of  the  policy  holder.  The  future  of  the  business  is  un- 
known, save  as  the  hundred  past  years  make  its  own  phrophecy. 
We  may,  however,  say  that  mutual  men  most  foster  correct 
underwriting  principles  and  encourage  such  inventive  skill  ap- 
plicable to  insurance  methods  as  shall  be  beneficial  to  the  frater- 
nity. We  are  in  a progressive  age,  the  age  which  finds  the 
ultimate  at  present  in  the  Marconi’s  system  of  wireless  telegra- 
phy, the  practical  realization  of  a dream  of  years  agone. 

No  practical  science  in  this  day  remains  at  a deadlock,  and 
it  will  require  the  bestir  of  brains  in  the  insurance  field  to  keep 
our  chosen  profession  where  it  belongs  as  the  handmaid  of  com- 
mercial activity,  not  in  the  rear-guard,  but  in  the  vanguard,  the 
front  rank  of  the  foremost  column.  John  Graham,  said  that 
only  three  things  were  required  of  the  successful  solicitor  for  a 
continuous  business:  first,  orders;  second,  more  orders;  third, 
more  and  larger  orders.  But  three  things  seem  to  be  required 
to  keep  the  mutual  system  to  the  front:  first,  excellent  service 
to  policy  holders;  second,  more  excellent  service;  third,  most 
excellent  service.  This  is  the  high  standard  at  which  the  Mass- 
achusetts mutual  men  are  aiming  and  this  principle  wisely  ad- 
vocated and  zealously  adhered  to  will  not  only  continue  the 
mutuals  in  historical  pre-eminence,  but  in  the  truest  sense,  still 
on  the  summit  of  the  insurance  heights. 

MICHIGAN. 

This  state  has  97  Mutuals,  of  these  seven  appear  to  do  a 
state  business,  the  rest  being  local.  Three  of  the  state  com- 
panies take  only  tornado  and  wind  storm  risks.  One  is  a class 
Mutual,  insuring  mill  property.  The  total  at  risk  December  31, 
1903  was  $388,196,182.  This  was  an  increase  of  over  twenty 
per  cent  on  the  previous  year.  The  assessments  were  low  and 


488 


A HAND  BOOK 


seventeen  companies  made  no  assessment  during  the  year.  The 
net  increase  in  members  was  12,499.  These  are  gratifying  fig- 
ures. 

The  following  extract  from  a letter  by  a leading  mutual 
insurance  man  gives  a good  idea  of  the  situation. 

“You  would  be  surprised  to  visit  out  state  and  hear  the 
different  views.  Several  efforts  have  been  made  for  uniform 
policy.  To  attempt  this  would  raise  war.  Everyone  thinks  his 
method  best,  and  from  the  uniform  success  of  all  companies  I 
would  not  attempt  to  say  which  is  best.  Personally  I regard 
the  best  condition  of  things  as  existing  where  two  or  more  com- 
panies cover  the  same  territory  with  principal  offices  in  adjoin- 
ing counties.  It  creates  rivalry  to  excel,  is  profitable  in  ex- 
perience and  in  case  of  large  properties  and  large  risks,  joint 
insurance  helps  both  companies  in  case  of  fire.  ’ ’ 

Meddling  in  this  case  would  only  be  productive  of  evil. 

In  Michigan,  the  old  New  England  system  of  township  tax 
collectors  is  used  and  some  companies  employ  these  collectors 
to  gather  in  the  assessments.  The  plan  is  said  to  work  very 
well.  It  is  certainly  very  economical  as  these  collectors  take 
side  lines  at  very  low  rates. 

MINNESOTA. 

Minnesota  is  one  of  the  banner  states  in  Mutual  Insurance. 
At  the  close  of  the  year  1903  there  were  in  business  in  Minne- 


sota Mutuals  as  follows: 

141  Township  Mutuals,  total  risks $163,113,327 

10  Mutual  Fire  Asso.  (state)  16,624,358 

13  Hail  and  Cyclone,  total  hail  risks 8,364,942 

Total  Cyclone  risks 9,276,729 


Total  197,379,356 

4 Joint  Stock,  total  risks 41,750,436 


SUPT.  DEARTH’S  ADDRESS. 

The  history  of  Mutual  Insurance  in  Minnesota  is  given 
in  the  admirable  address  of  State  Commissioner  Dearth  before 
the  National  Association  of  Co-operative  Mutual  Insurance  Com- 
panies at  St.  Paul,  Minn.,  March  4,  1902,  from  which  the  follow- 
ing extracts  are  taken. 

Speaking  of  Farm  Mutuals,  he  says: 

After  quoting  the  dismal  predictions  of  the  Commissioner 
alluded  to,  Mr.  Dearth  goes  on  to  say  that  they  represented  the 
general  sentiment  of  the  day  and  were  interesting  in  view  of 


OF  MUTUAL  INSURANCE 


489 


the  wonderful  success  which  all  of  the  companies,  organized 
in  the  State  of  Minnesota  since  the  enactment  of  the  law  in  1875, 
have  enjoyed.  With  but  one  or  two  exceptions  not  a single  far- 
mer’s township  mutual,  out  of  a total  of  130  odd  which  have 
been  incorporated,  have  retired  from  the  field,  and  the  one  or 
two  exceptions  did  not  fail  on  account  of  heavy  losses,  their 
charters  having  been  surrendered  before  any  business  was 
transacted. 

The  records  of  the  Insurance  Department  indicate  that  dur- 
ing the  entire  period  of  twenty-five  years,  or,  in  other  words, 
since  1876,  that  these  companies  have  been  operating  in  Minne- 
sota, the  average  premium  rate  per  $100  of  insurance  has 
amounted  to  the  small  sum  of  17  cents.  Of  this  amount  13 
cents  covered  all  losses  incurred,  while  4 cents  only,  on  each 
$100  of  insurance,  represented  the  entire  expense  of  manage- 
ment. It  thus  appears  that  it  has  only  cost  the  members  or 
policy  holders  of  these  companies  about  one  fifth  of  the  average 
amount  that  would  have  been  paid  to  the  regular  old  line  stock 
companies,  or  a saving,  in  round  numbers,  during  the  year  1901, 
of  $1,069,000.  The  farmers  of  this  State  have,  therefore, 
through  these  local  township  mutual  insurance  companies,  since 
the  enactment  of  the  law  in  1875,  saved  in  the  way  of  insurance 
premiums  a gross  sum  of  not  less  than  twelve  millions  of  dollars, 
and  during  each  year  in  the  future  there  will  be  an  average  sav- 
ing of  over  one  million  dollars. 

In  his  report  for  the  year  1903  he  says  of  the  Township 
Mutuals : 1 1 1 have  no  hesitancy  in  stating,  and  without  fear  of 
contradiction,  that  no  other  class  of  business,  whether  that  of 
insurance  of  any  other  line,  is  conducted  so  eminently  success- 
ful at  such  a very  small  cost,  and  further  more,  if  the  policy 
holders  of  the  various  other  classes  of  insurance  companies 
were  so  well  satisfied  with  the  indemnity  or  protection  enjoyed 
under  their  policy  contracts  as  is  evidently  true  of  the  Town- 
ship Mutual  membership,  there  would  appear  to  be  but  very 
little  reason  for  fault  finding  on  the  part  of  any  one.  ’ ’ 

The  insurance  laws  of  Minnesota  are  issued  in  convenient 
form.  They  are  well  indexed.  They  also  contain  the  full  text 
of  the  Supreme  Court,  opinions  construing  the  laws  and  a digest 
of  opinions  in  insurance  cases,  both  State  and  Federal. 

Minnesota  makes  provision  for  several  classes  of  Mutuals, 
State  Mutuals,  Creamery  and  Cheese  factory  Mutuals,  Mutual 
Hardware  Dealers  Insurance  Companies,  Publishers  Association 
Mutuals,  Mutual  Dwelling  House  Insurance  Companies  and 
hail,  tornado,  plate  glass,  etc.,  and  the  town  insurance  com- 
panies and  Farmers’  Mutuals. 


490 


A HAND  BOOK 


FROM  SUPT.  O’BRIEN. 

State  Superintendent  Thomas  D.  0 ’Brien  of  Minnesota 
kindly  furnishes  the  following: 

I do  not  intend  to  discuss  the  relative  merits  of  the  stock 
or  mutual  plan  with  reference  to  fire  insurance.  Each  has  its 
advantages  and  disadvantages,  and  I prefer  at  the  outset,  as 
this  article  is  to  be  confined  to  mutual  companies,  to  have  it 
understood  that  I am  not  attempting  to  express  any  preference 
for  the  mutual  over  the  stock  fire  insurance  company. 

The  stockholders  in  a stock  fire  insurance  company  first 
contribute  the  amount  of  the  capital  stock  and,  secondly,  in 
most  of  the  states,  assume  a liability  to  an  equal  amount  in 
ease  of  necessity  and  are,  therefore,  entitled  to  the  profits  made 
by  the  company.  These  profits  should,  of  course,  be  reasonable, 
but  with  this  limitation  they  are  the  absolute  property  of  the 
stockholders.  When  such  a company  issues  a policy  it  is  an 
ordinary  business  transaction  wherein  the  policy  holder  is  will- 
ing to  and  does  pay  a definite  sum  for  the  protection  afforded 
him,  entirely  irrespective  of  the  general  gains  and  losses  of  the 
company. 

A mutual  company,  however,  is  organized  upon  the  theory 
of  mutual  co-operation  and  generally  that  the  policy  holders 
become  underwriters  pro  rata  for  the  risks  taken  by  the  com- 
pany, and  if,  as  a result  of  the  business  transacted,  a profit  is 
declared,  it  is  the  property  of  the  policy  holders  and  should  be 
returned  to  them  pro  rata. 

If  by  these  means  full  protection  is  secured,  as  well  as  a 
cheaper  rate,  the  result  must  be  satisfactory  to  the  policy  hold- 
ers, but  these  two  conditions  bear  no  proportion  in  importance 
to  each  other,  complete  protection  being  the  first  and  important 
consideration  to  be  taken  into  account,  and  no  economy  in 
premium  should  be  considered  unless  the  protection  is  complete. 

My  experience  has  convinced  me  that  where  the  policy 
holders  in  a mutual  fire  insurance  company  are  all  engaged  in  a 
particular  line  of  business,  or  belong  to  a particular  class  of  the 
community,  and  where  they  have  occasion,  because  of  their 
common  calling,  to  come  together  at  stated  intervals  for  the 
purpose  of  mutual  advancement,  that  a fire  insurance  company 
owned  and  controlled  by  them,  officered  by  some  of  their  mem- 
bers who  do  not  depend  upon  such  offices  for  a livelihood,  affords 
complete  protection  through  the  mutual  underwriting  of  the 
members  or,  as  we  call  it,  the  contingent  liability  of  the  policy 
holders,  and  at  the  same  time  the  insurance  can  be  furnished 
for  comparatively  small  premiums ; and  I should  certainly  favor 
an  extension  by  the  laws  of  this  State  of  such  a system  to  those 


OF  MUTUAL  INSURANCE 


491 


engaged  in  various  lines  of  business. 

The  mutual  company  which  is  organized  by  a few  individ- 
uals and  exclusively  managed  by  them,  and  regarded  more  or 
less  as  a proprietary  company,  is  in  a somewhat  different  posit- 
ion. The  policy  holders  do  not  have  the  same  opportunity  for 
becoming  acquainted  with  each  other,  nor  do  they  take  the  same 
interest  in  the  management  of  the  company.  They  usually  re- 
gard the  management  as  the  company  and  they,  themselves,  as 
outsiders  dealing  with  the  company.  Where  these  policy  hold- 
ers pay  what  is  represented  to  them  as  a full  premium,  they 
consider  they  have  fully  performed  their  part  of  the  contract, 
and  when  called  upon  to  meet  an  assessment,  it  generally  marks 
the  extinction  of  the  company.  I realize  that  this  is  not  the 
case  where  wThat  is  known  as  a full  mutual  premium  is  not  col- 
lected in  advance,  and  where  all  the  payments  are  made  under 
assessments  levied  by  the  company,  as  is  the  practice  in  some 
companies.  My  judgment  is  that  mutual  companies  when  oper- 
ated upon  sound  principles  are  of  great  benefit,  not  only  to  the 
policy  holders  but  to  the  public  at  large,  and  undoubtedly  help 
to  keep  the  rates  within  reasonable  limits,  but  I am  just  as 
strongly  of  the  opinion  that  they  are  only  beneficial  when  they 
can  offer  absolute  security  to  the  policy  holder.  I believe,  there- 
fore, that  the  class  of  mutuals  which  I have  described  as  those 
organized  and  managed  exclusively  by  a few  individuals  and  en- 
gaged in  a general  fire  insurance  business,  should  at  all  times 
carry  their  reinsurance  reserve  in  available  cash  assets,  and 
that  the  contingent  liability  of  the  policy  holders  should  not  be 
considered  a cash  asset  or  an  asset  to  be  resorted  to  except  in 
the  most  extreme  cases. 

In  order  that  such  mutual  companies  might  be  able  to  do 
this,  I believe  the  law  should  permit  the  sale  by  the  company 
of  some  form  of  certificates  of  indebtedness  to  an  amount  equal 
to  its  reinsurance  reserve.  The  law  and  the  certificates  them- 
selves should  provide  that  the  company  should  be  only  liable 
upon  such  certificates  after  all  of  its  other  obligations  had  been 
extinguished.  They  should  further  provide  the  rate  of  interest 
which  might  be  paid  upon  such  certificates  and,  further,  that 
where  a company  did  accumulate  and  maintain  a reserve  of 
this  character,  that  it  might  waive  the  contingent  liability  of 
its  policy  holders,  thus  enabling  the  company  to  compete  on 
equal  terms  with  stock  companies  in  which  the  policy  holders 
are  not  contingently  liable. 

MISSOURI. 

Mutual  Insurance  is  making  good  progress  in  Missouri. 
Accurate  statistics  are  unattainable  as  the  Farm  Mutuals  do  not 


492 


A HAND  BOOK 


make  reports.  There  is  a partial  list  of  these  in  the  report  of 
the  State  Agricultural  Society  for  the  year  1900,  sent  by  Mr. 
Shiels,  which,  however,  includes  only  the  business  of  1899.  This 
list  includes  81  companies  their  total  risks  foot  up  $56,912,770. 
Later  estimates  put  the  number  at  one  hundred,  the  average 
membership  at  a thousand,  and  the  total  risks  at  a hundred 
millions  of  dollars.  Statistics  of  the  growth  of  a few  companies 
have  been  obtained  and  they  show  that  the  estimate  given  above 
is  too  low  rather  than  too  high.  These  companies  are  all  pros- 
perous, in  fact,  it  is  the  general  testimony  from  Missouri,  as 
from  every  other  state,  that  Farm  Mutuals  managed  by  farmers 
all  do  well.  It  is  stated  that  no  Mutuals  of  any  kind  have 
failed  in  Missouri  for  several  years. 

There  are  also  nine  State  Mutuals,  seven  of  these  are  in  St. 
Louis  and  are  doing  a large  and  satisfactory  business.  There 
are  also  ten  Town  Mutuals  and  three  or  four  Cyclone  and  Wind- 
storm Companies,  making  in  all  something  over  one  hundred 
and  twenty  companies  with  risk  amounting  to  over  two  hundred 
millions  of  dollars.  The  following  by  Mr.  J.  C.  McManima  of 
Springfield,  describes  the  various  plans  of  organization: 

“In  Missouri  we  have  three  distinct  systems  of  Mutual 
fire  insurance,  operated  under  three  distinct  laws,  and  these 
laws  are  very  nearly  models  in  their  respective  fields.  The  first 
law  to  be  considered  is  the  one  governing  what  are  known  as 
‘state’  or  ‘six  year’  companies,  of  which  there  are  a number 
that  have  been  in  successful  operation  for  a good  many  years, 
and  possess  to  a high  degree  the  confidence  of  the  insuring 
public.  This  law  provides  that  such  companies  may  be  organ- 
ized with  a guaranty  fund  of  not  less  than  $50,000  in  cash  or 
approved  securities,  which  must  be  assigned  to  and  deposited 
with  the  superintendent  of  insurance  of  the  state;  or  the  com- 
pany may  be  organized  without  the  guaranty  fund  with  not  less 
than  two  hundred  persons  making  bona  fide  applications  for 
insurance,  the  premiums  on  which  shall  amount  to  not  less  than 
$100,000  of  which  sum  at  least  30  per  cent  shall  be  paid  in 
cash  and  until  notes  of  solvent  parties,  founded  on  actual  and 
bona  fide  applications  for  insurance,  shall  have  been  received 
for  the  remainder.  No  premium  note  may  be  for  more  than 
$500.00,  and  such  risks  shall  be  for  not  less  than  six  years. 
In  case  of  a company  being  organized  with  a guaranty  fund,  it 
is  provided  that  such  sum  shall  be  contributed  by  not  less  than 
ten  persons,  and  no  part  of  it  can  be  withdrawn  until  the  com- 
pany holds  at  least  two  hundred  thousand  dollars  in  premium 
notes.  This  law  hedges  the  company  about  as  to  fully  protect 
the  public  and  is  elaborate  and  carefully  worded.  No  trouble 


OF  MUTUAL  INSURANCE 


493 


has  been  experienced  with  companies  operating  under  this  law, 
and  one  company  is  now  operating  under  it  with  a guaranty 
fund  of  $150,000.  These  state  mutuals  are  under  the  operation 
of  the  general  insurance  laws  of  the  state. 

‘ ‘ The  town  mutuals  may  do  business  in  town  or  country  and 
in  all  parts  of  the  state.  They  are  not  subject  to  the  general 
insurance  laws  of  the  state,  nor  to  the  valued  policy  law,  but 
must  make  annual  reports  and  are  subject  to  examination  by 
the  insurance  department  of  the  state.  Like  the  state  companies, 
they  may  do  a fire,  lightning  and  windstorm  business.  These 
companies  are  required  to  set  aside  a reserve  fund  of  not  less 
than  two  nor  more  than  ten  per  cent  of  the  gross  cash  premium 
receipts  as  a surplus  fund,  and  that  cannot  be  used  for  any 
purpose  except  payment  of  losses.  These  companies  may  be 
authorized  to  commence  business  when  bona  fide  contracts  of 
insurance  to  aggregate  $1,000  in  premiums  have  been  received, 
and  I may  add  here  that  this  is  the  only  weak  spot  in  the  law, 
though  this  weakness  is  offset  by  other  provisions  and  safe- 
guards. A provision  is  also  made  that  a town  mutual  may 
deposit  a guaranty  fund  with  the  state  insurance  department  for 
the  protection  of  its  policy  holders,  and  one  company  has 
strengthened  its  position  by  making  such  a deposit. 

“ Under  the  present  Farm  or  “County  Mutual’ ’ law,  such 
companies  are  restricted  to  a single  county,  and  are  exempt 
from  the  general  insurance  laws  of  the  state,  but  there  were  a 
few  that  were  organized  under  an  old  law  that  are  authorized 
to  do  business  in  more  than  one  county,  and  in  such  cases  the 
counties  are  designated  in  the  charter,  and  I know  of  no  case 
in  which  a farm  mutual  has  done  business  in  more  than  four 
counties.  There  are  also  a few  companies  that  are  not  chartered, 
but  are  operated  as  a partnership.  In  Missouri  we  have  farm 
or  county  Mutuals  that  have  been  in  business  more  than  thirty 
years,  and  there  has  never  been  a failure,  though  we  now  have 
about  one  hundred  companies,  carrying  nearly  one  hundred 
million  dollars  of  insurance.  One  company  doing  business  in  a 
single  county  reports  a membership  of  4,073  with  $2,789,222.78 
insurance  in  force.  This  company  was  organized  in  1875. 

* 1 Co-operation  in  the  various  counties  has  been  so  successful, 
that  our  mutual  insurance  men  have  been  getting  closer  together, 
from  all  over  the  state.  We  now  have  in  Missouri  a state  asso- 
ciation of  farm  mutual  insurance  companies,  with  a full  set  of 
officers,  and  most  of  the  county  mutuals  are  members  of  the 
association.  We  have  inaugurated  a regular  system  of  reports 
that  are  made  by  the  various  county  mutuals  to  the  secretary 
of  the  state  association,  the  reports  being  almost  as  complete 


494 


A HAND  BOOK 


as  those  made  by  the  stock  companies  to  the  insurance  depart- 
ment of  the  state.  We  have  our  annual  conventions  when  we 
get  together  for  the  purpose  of  spending  two  or  three  days  in 
comparing  notes,  discussing  plans  and  methods  and  getting 
acquainted  with  each  other.  These  conventions  are  both  valu- 
able and  pleasant,  though  usually  full  of  business  from  start  to 
finish.  In  our  state  association  we  also  have  a permanent  legis- 
lative committee,  and  during  a legislative  session  this  committee 
keeps  an  eye  on  insurance  legislation,  and  if  a dangerous  meas- 
ure comes  up,  the  word  is  passed  along  the  line  and  notice  goes 
out  that  it  would  displease  100,000  farmers  to  have  the  measure 
become  a law,  and  hundreds  of  these  farmers  write  to  or  see 
their  legislative  representative  and  the  result  is  that  the  danger- 
ous bill  is  killed,  even  when  it  is  backed  by  all  the  wealth  and 
power  of  the  combine  of  the  joint  stock  companies.  When  it 
comes  to  legislation,  such  an  organization  as  we  have  in  Missouri 
is  sure  to  control  the  situation,  and  its  position  is  almost  invul- 
nerable. With  such  an  organization  as  to  farm  insurance,  is 
it  any  wonder  that  the  stock  companies  have  virtually  aband- 
oned the  field?  In  addition  to  these  points  it  must  never  be 
forgotten  that  the  100,000  farmers  of  Missouri  who  are  now 
protected  by  their  own  mutuals,  are  saving  about  half  a mil- 
lion dollars  a year  at  the  lowest  estimate,  and  this  is  certainly 
worth  figuring  on.  In  addition  to  the  direct  saving  through 
mutual  insurance  companies,  there  is  a large  indirect  saving  by 
forcing  the  stock  companies  to  reduce  rates  all  along  the  line.” 

No  state  has  been  exempt  from  the  raids  of  fraudulent 
organizers.  Mr.  A.  Shiel  of  Burlington  Junction  gives  us  a 
brief  history  of  the  experience  of  Missouri  as  follows: 

1 1 The  law  permitting  the  organization  and  incorporation  of 
the  Mutuals  was  passed  in  the  year  1889.  Then  again 
there  was  another  law  passed  permitting  the  incorporation  of 
town  mutuals  at  a more  recent  date;  this  I think  was  six  or 
seven  years  ago.  These  companies  were  manipulated  by  the 
emissaries  of  Old  Line  Companies  apparently,  for  out  of  about 
fifty-six  only  one  or  two  remain  in  business.  Their  method 
was  to  take  the  rating  of  the  old  line  company,  collect  one-half 
cash,  give  time  on  the  balance,  then  proceed  to  collect  the  bal- 
ance by  assessment  soon  thereafter,  then  go  out  of  business; 
some  of  them  made  two  assessments  or  more,  but  they  were 
short  lived,  they  having  the  name  of  Mutual  injured  the  county 
Mutuals  of  which  we  have  96  in  the  state,  none  of  which  have 
failed.  There  was  a town  Mutual  organized  at  Marysville.  It 
went  under,  leaving  an  indebtness.  Another  was  organized  at 
Rockport.  Another  of  the  town  Mutuals  was  organized  at 


OF  MUTUAL  INSURANCE 


495 


Stanberry,  Mo.  Both  failed.  I hardly  know  how  you  can  get 
the  vital  statistics  of  these  miserable  concerns.  I speak  rather 
bitterly  of  them  because,  owing  to  their  failures,  the  finger  of 
scorn  was  pointed  at  all  the  Mutuals,  and  caused  numberless 
cancellations  in  all  County  Mutuals.  The  ignorance  and  pre- 
judice told  against  us,  but  we  have  outlived  the  harm  they  were 
capable  of  doing,  and  maybe  the  experience  is  a benefit  in  the 
end. ’ ’ 

Mr.  Jesse  D.  Mohler  of  Warrensburg,  says  that  in  the 
history  of  Farmers  Mutuals  in  Missouri,  not  one  has  ever  re- 
tired without  “ first  paying  all  its  indebtedness.  Town  Mutuals 
have  done  so  and  some  farm  Mutuals  have  been  absorbed  by 
stock  companies,  but  no  straight  Farm  Mutual  has  ever  gone 
back  on  the  people.” 

Mr.  E.  S.  Osgood,  of  Mendon,  estimates  the  annual  saving 
to  the  people  of  Missouri  at  a million  of  dollars. 

Speaking  of  the  Agricultural  Reports,  Mr.  A.  Shiel,  of  Burl- 
ington Junction,  says: 

“This  is  voluntary  as  the  law  does  not  require  us  to  do  so. 
But  I believe  it  would  be  better  if  we  had  state  supervision  and 
had  to  certify.  It  would  have  a tendency  to  make  Secretaries 
more  careful  in  their  reports.  I find  many  who  think  differently. 
I think  about  half  of  the  County  Mutuals  are  reported.’ ’ 

Recently  there  is  an  apparent  tendency  to  organize  more 
companies  under  town  Mutual  law,  and  there  is  unquestionably 
a good  field  for  them.  The  success  of  the  Farmers  in  co-opera- 
tion as  to  insurance  has  caused  the  people  of  the  towns  to  do  a 
great  deal  of  thinking  and  the  result  will  be  more  successful 
town  Mutuals.  The  people  have  also  learned  some  valuable 
lessons  from  former  mistakes  of  Town  Mutuals  and  these  mis- 
takes will  never  be  repeated.  On  the  whole,  Missouri  may  be 
said  to  be  in  fine  shape  as  to  Mutual  Insurance  Laws,  Mutual 
Insurance  Operators,  and  Mutual  Insurance  Sentiment. 

NEBRASKA. 

Nebraska  is  one  of  the  States  in  which  Mutual  Insurance 
has  made  good  progress.  The  State  has  three  general  Mutuals 

doing  a good  business,  with  risks  of $ 15,186,369 

Eight  city  and  village  Mutuals  with  risks  of 12,286,856 

Sixty-five  Farmers’  Mutual  Fire  and  Tornado  com- 
panies with  risks  of 113,322,192 

Total  $140,795,417 

There  are  four  miscellaneous  Mutuals  with  risks  of.  986,365 
Six  Hail  companies  with  risks  of 1,992,141 


Eighty-six  companies,  Grand  Total 


$143,773,923 


496 


A HAND  BOOK 


The  early  experience  of  Nebraska  witnessed  not  a few  at- 
tempts at  fraud  but  the  State  soon  passed  safeguards  against 
these,  and  of  late  the  Mutuals  have  made  continual  and  uninter- 
rupted progress.  The  State  has  been  fortunate  in  possessing  a 
large  number  of  men  of  great  abilities,  and  earnest  devotion  to 
the  cause  of  Mutual  Insurance.  Their  influence  has  been  felt 
not  only  at  home,  but  in  other  States,  and  they  are  entitled  to 
credit  for  much  good  work  especially  in  the  new  States. 

KIND  OF  COMPANIES. 

First.  What  is  known  as  the  1873  law  companies.  This  is 
a joint  law  providing  for  the  organization  of  stock  companies 
and  of  mutuals.  Under  the  mutual  part  of  it  a company  may  be 
organized  by  having  insurance  premium  contracts  for  $25,000.00 
on  which  $5,000.00  must  have  been  paid  in  cash  and  $20,000.00 
in  notes,  which  must  remain  up  as  security  for  losses  until  the 
company  has  accumulated  resources  equal  to  that  required  of 
a stock  company.  This  class  of  companies  can  limit  the  liability 
of  their  policy  holders.  In  March  2,  1905,  an  amendment  was 
made  to  section  17  of  that  act  providing  for  the  establishing  of 
a guaranty  fund  for  the  writing  of  premiums  for  cash  and  stipu- 
lated terms. 

Second.  The  law  of  1891  under  which  the  exclusively  farm 
mutual  companies  of  Nebraska  are  incorporated  both  those 
doing  a state  business  and  county. 

To  organize  required  the  signature  of  20  residents  of  the 
State  who  own  property  of  not  less  than  $20,000.00  which  they 
desire  to  have  insured.  Regular  articles  of  incorporation  must 
be  adopted  and  filed.  Farm  companies  are  very  successful,  one 
carrying  over  $50,000,000.00  of  risks. 

Third.  What  is  known  as  the  law  of  1897  provides  for  the 
organization  of  city  and  village  mutuals.  Not  less  than  100 
persons  owning  not  less  than  $100,000.00  of  property  which  they 
desire  to  have  insured  may  incorporate  and  proceed  to  do  busi- 
ness. This  law  took  effect  April  6,  1897.  Companies  organized 
under  this  can  only  insure  property  in  cities  and  villages  and 
business  properties  outside.  Not  exceeding  9 directors  may  be 
elected.  They  shall  embody  the  name  Mutual  in  their  name,  and 
may  issue  policies  in  the  regular  form.  The  act  provides  for  a 
reserve  fund  of  not  less  than  ten  per  cent  of  the  amount  collect- 
ed in  cash  at  the  time  of  issuing  the  policy.  Several  companies 
are  organized  under  this  act  and  are  doing  a successful  city 
business.  There  is  provision  also  for  unincorporated  Mutuals. 

That  is,  nothing  in  the  various  acts  shall  be  so  construed 
as  to  prevent  any  number  of  persons  from  making  mutual  obli- 


OF  MUTUAL  INSURANCE 


497 


gations  and  giving  the  valid  obligations  to  each  other  for  their 
own  insurance.  Such  associations  or  companies  shall  receive  no 
premiums,  make  no  dividends,  or  pay  in  any  case  more  than 
$2.00  per  day  to  any  of  their  officers  for  compensation.  And 
they  can  only  collect  assessments  for  losses  and  expenses  aa 
provided. 

I do  not  think  there  are  any  companies  operating  under 
that  act,  not  more  than  one  or  two  small  ones  at  least. 

Fourth.  In  1903  there  was  also  passed  a law  for  the 
mutual  insuring  of  domestic  animals  and  a company  can  be 
organized  by  not  less  than  100  persons  residing  in  not  less  than 
100  different  counties  who  collectively  shall  own  domestic  ani- 
mals, except  swine,  of  not  less  than  $50,000.00  in  value.  They 
may  be  insured  against  loss  by  fire,  lightning,  tornado,  disease 
or  accident.  If  any  company  has  been  organized  under  it  much 
has  not  been  heard  concerning  it. 

Fifth.  There  is  a statute  providing  for  hail  insurance 
which  took  effect  April  3,  1897,  and  under  which  not  less  than 
100  persons  residing  in  this  state  who  collectively  own  not  less 
than  5,000  acres  of  grain  which  they  desire  to  have  insured  may 
be  organized  for  the  purpose  of  mutually  insuring  their  growing 
crops  from  loss  or  damage  by  hail.  Such  incorporators  must 
reside  in  not  less  than  10  different  counties.  This  law  was 
amended  in  1905  with  many  good  conditions  and  provisions. 

Sixth.  There  are  also  statutes  providing  for  the  organiza- 
tion of  mutual  plate  glass  companies  under  which  any  number 
of  persons,  not  less  than  15,  residing  in  this  state,  who  are  the 
owners  of  plate  glass  windows,  in  mercantile  or  other  build- 
ings, which  they  desire  to  have  insured  against  accident  or  other 
breakage,  may  organize. 

Some  work  is  done  by  companies  under  that  statute. 

Seventh.  There  is  a statute  in  Nebraska  providing  for  the 
cancellation  of  policies. 

NEW  HAMPSHIRE. 

New  Hampshire  has  always  been  an  excellent  state  for 
Mutual  insurance.  In  1885  in  consequence  of  the  passage  of  the 
Valued  Policy  Law,  and  the  departure  of  the  foreign  companies, 
there  were  quite  a number  of  cash  mutuals  incorporated  to  fill 
the  breach.  On  the  return  of  the  companies  all  of  those  grad- 
ually dropped  out  so  that  now  there  are  but  two  in  existence— 
the  Manufacturers  & Merchants,  and  the  Concord  Mutual,  both 
located  in  Concord,  N.  H. 

31 


498 


A HAND  BOOK 


1890  1904 

At  risk  $4,892,201  $6,268,862 

Assets  97,401  188,091 

Surplus  47,511  134,102 


The  number  of  assessment  mutuals  which  includes  twenty 
town  mutuals,  two  county  and  the  Grange,  in  1890  was  23.  The 
town  mutuals  confine  their  business  to  their  own  towns.  The 
two  counties ’ to  their  respective  counties,  and  that  of  the 
Grange  extends  all  over  the  State  but  is  confined  to  members 
of  the  Order.  The  amount  in  force  of  these  23  on  December 
31st,  1890,  was  $9,254,529.  Since  that  time,  two  of  the  town 
mutuals  dropped  out,  leaving  the  number  December  31st,  1904, 
including  the  Grange  and  County  Mutuals,  21. 

The  amount  in  force  of  these  21  on  December  31st,  1904, 
was  $16,007,810. 

The  two  town  mutuals  that  retired  did  not  fail.  They 
wound  up  their  business  and  paid  their  claims  in  full. 

The  following  laws  apply  to  the  Mutuals.  Chapter  168, 
sec.  1.  “Members  of  Mutual  insurance  companies  shall  not  be 
individually  liable  to  pay  any  debts  of  their  respective  com- 
panies beyond  their  ability  to  assessments  for  losses  occurring 
therein,  not  to  such  assessments  beyond  the  amount  of  their 
deposit  notes.’ 1 

Sections  2 and  5 apply  to  cash  mutuals: 

Sec.  2.  “Any  such  company  organized  under  the  laws  of 
this  state  which  charges  a full  cash  premium,  may  limit  the 
liability  of  policy  holders  to  assessment  by  a stipulation  in  the 
policy,  which  shall  have  the  same  effect  as  a deposit  note  signed 
by  the  assured.” 

See.  5.  “No  such  company  which  charges  a full  cash 
premium  shall  make  a dividend  to  its  policy  holders  that  will 
reduce  its  cash  assets  below  seventy  per  cent  of  the  gross  prem- 
iums received  upon  all  risks  then  in  force.” 

The  standard  form  of  policy  is  used  and  all  insurance  com- 
panies are  held  to  a strict  account. 

There  are  several  Massachusetts  Mutual  Insurance  Com- 
panies which  do  business  in  this  state,  five  Massachusetts  and 
one  from  Rhode  Island.  During  1904  these  companies  wrote 


$3,750,804. 

Premiums  received  $52,629.44 

Losses  22,612.08 


showing  a loss  ratio  for  these  companies  of  42.9  per  cent. 

NEW  JERSEY. 

New  Jersey  has  been  described  as  being  situated  between 
two  great  cities  with  none  of  her  own.  The  competition  for 


OF  MUTUAL  INSURANCE 


499 


business  between  is  exceedingly  keen.  Her  eleven  stock  com- 
panies have  to  fight  for  their  lives.  The  state  has  twenty-two 
mutuals  which  are  making  fair  progress.  They  show  a total  of 
risk  of  $57,062,270,  with  contingent  assets  $2,240,409,  and  cash 
assets  of  $401,911,  a fair  increase  over  previous  years. 

Peculiarly  liable  to  invasion  by  sharpers  from  the  cities  of 
other  states,  New  Jersey  has  found  it  necessary  to  enforce  the 
criminal  laws  vigorously.  Her  statutes  protect  her  citizens 
against  insurance  frauds. 

The  details  of  the  business,  mutuals  manage  as  they  see 
fit.  But  they  must  be  financially  sound  or  they  will  be  closed 
up. 

No  statistics  of  lightning  or  tornado  insurance  are  given. 
The  local  fire  mutuals  probably  care  for  lightning  risks. 

NEW  YORK. 

It  has  been  remarked  that  it  is  fortunate  that  New  York  is 
a large  State  or  there  would  not  be  room  for  the  enormous 
variety  of  schemes  and  theories  which  exist  within  its  borders. 
Including  one  of  the  great  cities  of  the  world,  the  literary  and 
political  sewer  of  the  Union,  it  is  the  home  of  the  extremely 
good  and  bad  in  every  imaginable  line.  Insurance  furnishes  its 
full  share  of  the  contents  of  this  witches  ’ caldron.  The  joint 
stock,  the  Lloyd  and  the  Mutual  are  all  there,  and  it  is  said  that 
among  these  a man  can  be  insured  against  any  imaginable 
calamity,  in  any  kind  of  a company  he  desires.  It  goes  without 
saying  that  between  the  co-operative  and  joint  stock  systems 
there  is  war  to  the  knife.  The  Mutuals  do  not  report  to  the 
State  Superintendent  of  Insurance  but  file  their  statements 
with  the  Secretary  of  State,  but  nothing  is  ever  done  with  them 
by  way  of  making  them  public. 

A letter  to  the  Superintendent  of  Insurance  brought  no 
information. 

A letter  from  a prominent  Mutual  Insurance  man  explains 
the  situation  exactly.  He  says: 

“I  think  that  the  statistics  given  you  by  the  Superintend- 
ent of  Insurance  are  rather  misleading,  but  there  may  be  some 
excuse  for  this  as  I should  judge  that  it  refers  to  an  entirely 
organized  under  a special  law.  So  far  as  I know  the  business 
of  these  co-operative  companies  has  been  very  satisfactory  and 
there  has  been  no  failure  that  I am  aware  of.  There  are  over 
one  hundred  and  twenty  of  these  companies  in  this  state  which 
send  representatives  to  the  Central  Organization  of  co-operative 
insurance  companies.  It  is  true  that  we  do  not  report  to  the 
Superintendent  of  Insurance  and  he  has,  apparently,  a grievance 


500 


A HAND  BOOK 


against  us  and  the  Secretary  of  State  don’t  like  to  have  us  re- 
port to  him,  so  he  is  not  with  us,  but  we  keep  right  on  doing 
business  just  the  same  and  saving  our  patrons  thousands  upon 
thousands  of  dollars  every  year.” 

The  Patrons  of  Husbandry,  otherwise  known  as  the  Grange, 
have  a large  number  of  Mutual  Fire  Insurance  Companies  in 
New  York  and  other  States.  These  insure  none  but  members, 
are  all  well  managed  and  save  large  sums  for  their  members. 
The  following,  clipped  from  the  annual  report  for  the  Jefferson 
County  Patrons’  Fire  Relief  Association,  is  a fair  example. 
Total  amount  of  insurance  in  force  Oct.  1,  1903. . .$10,975,463.00 
Total  assessment  on  policies  in  force  Oct.  1, 1903. . 10,975.75 

The  cost  of  our  insurance  as  compared  with  rates  of  Stock 
Companies,  show  a saving  in  favor  of  the  P.  F.  R.  A.  of  $3.75 
per  $1,000,  a total  saving  to  the  members  in  1903  of  $41,795.15. 

W.  H.  VARY,  Secretary. 

NORTH  DAKOTA. 

This  state  has  sixteen  county  Mutuals,  reporting  totals  at 

risk  (3  estimated)  $8,516,623.00 

Eight  State  Mutuals  do  not  report  totals  at  risk,  but  wrote 

during  1893  $6,308,382.05 

Two  Hail  Mutuals  wrote $1,679,691.00 

North  Dakota  has  excellent  provisions  against  spurious  com- 
panies. If  the  people  would  only  assist  in  carrying  them  out 
the  citizens  would  be  well  protected  against  swindling  insur- 
ance. It  is  within  the  power  of  any  person  to  cause  the  arrest 
of  any  agent  acting  without  authority  or  for  an  unauthorized 
company. 

In  1903  a law  was  passed  requiring  any  hail  companies 
organized  under  the  laws  of  any  county  or  state  to  deposit 
with  the  state  treasurer  the  sum  of  $25,000  before  being  author- 
ized to  transact  business.  This  had  a good  effect. 

The  laws  provide  for  the  safe  management  of  insurance 
companies.  The  arrangement  and  annotation  of  the  laws  art 
very  much  like  those  of  South  Dakota  and  are  in  a very  con- 
venient form. 

OHIO. 

Ohio  has  22  Mutuals  with  risks  of $338,883,223.00 

114  assessment  fire  and  miscellaneous  companies, 

having  at  risk 202,249,066.00 

Total  at  risk $540,132,309.00 

These  statistics  include  class  mutuals  as  well  as  the  ordin- 
ary risks.  Some  new  companies  have  been  chartered  since  the 
report  was  issued. 


OF  MUTUAL  INSURANCE 


601 


Mutual  companies  must  file  bond  of  $10,000,  must  have  not 
less  than  $500,000  on  insurance  in  not  less  than  300  shares.  The 
premium  for  one  year  amounting  to  not  less  than  $10,000  must 
have  been  paid  in  cash  and  each  subscriber  must  assume  a 
liability,  not  less  than  three  nor  more  than  five  annual  prem- 
iums. Each  subsequent  applicant  for  insurance  must  agree  to 
the  same  liability.  Such  companies  may  collect  an  annual 
premium  in  advance. 

Fire  insurance  companies  may  insure  against  lightning, 
explosions  and  tornado. 

Sec.  3691  reads:  The  cellar  and  foundation  walls  shall  not 
be  included  or  considered  a part  of  the  building  or  structure  in 
settling  losses,  anything  in  the  application  or  policy  to  the  con- 
trary notwithstanding. 

The  Ohio  Laws  have  been  revised  and  some  companies  are 
working  under  the  old  laws  and  some  under  the  new.  There 
is  a rigid  system  of  inspection  and  companies  must  keep  within 
safe  limits.  The  Mutuals  come  under  this  Statute. 

Ohio  has  a good  fire  marshal  law  and  the  results  have  been 
very  satisfactory. 

OKLAHOMA. 

Mutual  Insurance  affairs  in  Oklahoma  are  in  rather  a cha- 
otic condition.  The  laws  are  not  satisfactory,  and  efforts  to 
secure  more  favorable  legislation  have  thus  far  failed. 

There  are  three  Mutuals  in  Oklahoma.  One  is  an  exclusive 
hail  company,  one  issues  hail  and  fire  policies,  the  third  does 
business  in  hail,  fire  and  tornado  lines. 

One  company  assesses  to  meet  losses  and  settles  in  full  every 
year,  the  others  carry  over  a surplus  to  protect  policy  holders. 
All  three  seem  to  be  in  good  shape. 

They  have  been  fortunate  in  being  able  to  carry  hail  insur- 
ance for  several  years  at  less  than  three  per  cent. 

The  companies  are  increasing  their  business  very  rapidly, 
the  total  at  risk  being  now  over  ten  millions  of  dollars.  This  is 
a very  good  start  and  with  better  legislation  the  Oklahoma 
Mutuals  may  expect  to  do  most  of  the  fire,  hail  and  tornado  busi- 
ness of  the  state. 

A recent  decision  forbids  farm  mutuals  from  insuring  any 
property  inside  of  corporate  limits. 

OREGON. 

A brief  study  of  the  Insurance  Commissioner’s  report  for 
1904  (giving  the  figures  for  1903  business)  discloses  some  inter- 
esting facts,  which  should  be  encouraging  to  the  friends  of  the 
mutual  insurance  cause. 


502 


A HAND  BOOK 


In  1899  the  stock  companies  wrote  $64,155,205.49,  while  in 
1903  they  wrote  $95,531,484.84,  or  an  increase  of  about  49  per 
cent. 

In  1899  the  mutual  companies  wrote  $2,761,453.00,  while  in 
1903  they  wrote  $8,083,072.00,  or  an  increase  of  about  192  per 
cent. 

On  Dec.  31,  1903,  the  mutual  companies  had  in  force 
$18,513,893.00  insurance,  divided  among  the  five  companies  as 
follows : 

Oregon  Fire  Relief  Ass  hi.  (of  McMinnville) $15,692,707.00 


Farmers  Fire  Relief  Ass  hi.  (of  Butte ville) 1,425,990.00 

Hop  Growers  Fire  Relief  Association 926,839.00 

German  Fire  Insurance  Company 385,804.00 

Farmers  Fire  Relief  Ass  hi.  (of  Sublimity) 82,553.00 


Total  $18,513,893.00 


The  commissioners  report  does  not  give  the  amount  of  insur- 
ance in  force  in  stock  companies  on  Dec.  31,  1903,  but  estimat- 
ing the  insurance  in  force  at  25  per  cent  more  than  the  amount 
written,  (In  the  state  of  New  York  the  amount  of  insurance  in 
force  at  the  close  of  1903,  was  a little  less  than  18  per  cent 
more  than  the  amount  written  during  the  year)  would  give  the 
stock  companies  about  $119,500,000.00  as  compared  with 
$18,500,000.00,  in  round  numbers,  in  the  mutuals.  This  will 
then  give  us  this  interesting  fact;  in  a state  where  mutual  fire 
insurance  was  practically  unknown  ten  years  ago,  mutual  com- 
panies now  carrying  about  13%  per  cent  or  more  than  % of  its 
entire  fire  insurance  business. 

There  is  no  uniformity  of  rates  or  policy  forms  among 
the  mutual  companies  in  the  state. 

The  O.  F.  R.  A.  the  largest  of  the  mutuals  in  the  state, 
bases  its  rates  upon  the  tariff  rates  of  the  stock  sampanies, 
and  its  policy  forms,  aside  from  the  provisions  necessarily 
embodied  in  a mutual  contract,  are  very  similar  to  the  New  York 
standard  form  of  policy. 

There  is  no  hail  or  tornado  insurance  in  the  state,  and  losses 
and  damages  from  lightning  are  very  rare  occurrences,  the  O. 
F.  R.  A.  in  its  ten  years  experience  having  had  but  two  slight 
damages  resulting  from  lightning. 

The  O.  F.  R.  A.  only  insures  against  loss  or  damage  by 
fire;  and  it  insures  dwellings,  barns,  boarding  and  lodging 
houses,  brick  buildings,  warehouses,  hop  houses  and  hop  dryers 
and  growing  grain. 

Private  dwellings  and  barns  are  written,  either  for  5 years 
on  the  assessable  plan,  or  on  the  paid  up  plan  for  3 years. 
Other  classes  of  risks  are  written  for  one  year  or  less  on  the 


OF  MUTUAL  INSURANCE 


508 


paid  up  plan.  Hops  and  growing  grain  are  usually  written  for 
from  30  to  60  days.  Under  the  paid  up  plan  the  assessments 
are  collected  in  advance  instead  of  being  called  during  the  term 
of  the  certificate. 

There  is  one  company,  The  Lower  Columbia  Fire  Relief 
Association  which  is  operated  in  connection  with  the  State 
Grange  and  which  does  a fire  insurance  business  among  mem- 
bers of  the  Grange  only,  and  which  on  account  of  the  provisions 
of  Sec.  3748  of  the  insurance  laws  is  not  required  to  make  a 
report  of  its  business  to  the  insurance  commissioner.  In  con- 
sequence of  this  no  statistics  or  figures  of  this  company’s  busi- 
ness are  available. 

The  Oregon  Fire  Relief  Association,  of  McMinnville,  which 
was  organized  Sept.  10,  1894,  is  the  only  mutual  fire  insurance 
company  doing  a general  business  throughout  the  state. 

The  Hopgrowers  Fire  Relief  Association  of  Butteville  was 
organized  in  1890,  and  the  Farmers  Fire  Relief  Association  of 
Butteville,  under  the  same  management,  was  organized  in  1896. 
They  confine  their  business  to  the  counties  constituting  the 
Williamette  valley. 

The  six  stock  companies  organized  under  the  laws  of  this 
state  have  all  retired  from  business,  so  that  there  are  now  no 
Oregon  stock  fire  insurance  companies. 

• One  mutual  retired  from  business  in  1902,  a considerable 
part  of  its  business  having  been  rewritten  in  the  O.  F.  R.  A. 

There  are  two  distinct  climates  in  Oregon;  the  great  section 
in  Eastern  Oregon,  east  of  the  Cascade  Mountains  is  very  dry 
and  hot  during  the  summer  months  and  there  is  no  moss  to  con- 
tend with,  but  the  settlements,  towns  and  cities  are,  owing  to 
the  strong  prevailing  winds,  liable  to  general  conflagrations. 
In  Western  Oregon,  west  of  the  Cascade  Mountains,  the  climate 
is  influenced  by  the  ocean  currents,  the  mean  temperature  being 
about  60  degrees  with  much  more  rain,  and  roofs  that  are  not 
painted  become  covered  with  moss,  which  during  the  dry 
season  of  the  year  becomes  a menace  to  the  buildings  and  the 
records  show  a large  per  cent  of  losses  caused  from  sparks  on 
the  roof  igniting  the  moss. 

The  conditions  in  Oregon  are  very  different  from  those  in 
the  central  portion  of  the  United  States.  In  the  wheat  growing 
portion  there  is  no  rain  from  the  time  the  grain  begins  to  ripen 
until  fall,  nor  do  hail  storms  or  cyclones  occur.  Hence  the  wheat 
can  be  left  standing  till  the  farmer  is  ready  to  harvest  it.  Dur- 
ing this  period  the  country  becomes  exceedingly  dry  and  sweep- 
ing fires  are  frequent.  It  is  these  which  the  farmers  insure 
against  while  hail  and  tornado  insurance  are  unknown.  Light- 


604 


A HAND  BOOK 


ning  is  very  rare.  On  the  coast  during  the  wet  season  the  moss 
grows  everywhere.  This  is  the  green  moss  occasionally  found 
in  single  patches  in  damp  shady  places  in  the  interior  of  the 
country ; it  covers  the  roof  and  in  the  summer  becomes  very  dry. 
In  these  respects  and  in  several  others  insurance  conditions  in 
Oregon  and  Washington  differ  from  those  in  other  states. 

The  0.  F.  R.  A.  ratio  of  losses  to  stock  company  annual 
premiums  for  1903  was  22.8  per  cent. 

The  0.  F.  R.  A.  paid  to  its  members  in  losses  from  its 
organization  up  to  Dec.  31,  1903  $151,287.35. 

The  laws  of  the  state  relating  to  mutual  fire  insurance  com- 
panies are  very  brief. 

different  line  of  insurance  from  ours,  or  the  one  I am  interested 
in,  and  that  is  a co-operative  insurance  company  which  was 

PENNSYLVANIA. 

Pennsylvania  boasts  of  the  oldest  Mutual  Fire  Insurance 
Company  in  the  United  States  and  one  of  the  oldest  in  the 
World.  An  account  of  this  is  given  elsewhere. 

The  state  has  at  last  report,  236  Mutuals  with  total  assets 
$795,774,348.  There  are  also  some  live  stock  Mutuals  whose 
total  risks  are  not  given. 

The  Mutuals  of  Pennsylvania  are  generally  old  and  well 
established  institutions.  Some  are  working  under  old  charters 
and  some  have  been  organized  but  lately.  All  however,  are 
under  the  strictest  supervision  and  are  safely  conducted. 

The  New  York  Standard  policy  has  been  adopted  and  there 
are  also  standard  two-third,  three-fourths,  co-insurance  and 
lightning  forms  to  attach  to  policies.  Nearly  all  the  laws  have 
been  construed  by  the  courts  and  insurance  practice  is  well 
settled. 

All  the  Mutuals  have  abundant  assets  and  all  furnish  insur- 
ance at  very  low  cost.  There  is  a great  diversity  of  methods. 

Mr.  James  Miller,  the  veteran  Secretary  of  the  Lykens 
Valley  Mutual  Fire  Insurance  Company,  gives  some  very  inter- 
esting information.  His  company  has  been  in  business  over 
fifty  years.  It  has  made  only  nineteen  assessments  during  this 
period.  The  total  average  of  cost  to  the  assured  was  less  than 
eighteen  cents  a year. 

Concerning  the  premiums  and  assessments,  he  says: 

“In  the  early  days  of  the  company,  losses  were  not  so 
numerous,  and  the  Company  had  a habit  of  borrowing  money, 
until  the  load  became  too  heavy,  and  then  the  Board  laid  an 
assessment.  But,  they  did  not  provide  for  future  losses,  con- 
suming all  premiums  paid  in,  and  in  sight,  and  the  result  was 


OF  MUTUAL  INSURANCE 


505 


that  the  next  year  found  them  short  of  funds,  and  an  assess- 
ment had  to  come  again. 

I hold  that  the  premiums  coming  in  this  year  on  policies 
running  3 to  5 years,  should  be  considered  as  reserved  to  pay 
losses  on  those  policies  and  not  use  them  to  pay  losses  on 
policies  issued  1,  2 or  more  years  ago.  “Let  the  dead  past,  bury 
their  dead,”  or  in  other  words,  let  the  past  policies  pay  their 
own  losses;  as  future  policies  theirs. 

If  Mutual  companies  would  keep  a reserve  fund,  say  of  $500 
for  every  $500,000  insurance  on  the  books,  they  would  be  as 
strong  to  meet  losses  as  stock  companies,  but  if  money  is 
drawn  from  the  reserve  fund,  it  should  be  replaced  out  of  the 
next  assessment;  or  if  present  premiums  are  used  to  pay  losses 
on  past  policies  (issued  in  the  past),  this  money  should  be  re- 
placed out  of  the  next  assessment. 

If  a man  takes  a policy  to  day  and  pays  his  premium  there- 
on, what  right  has  the  company  to  pay  out  that  premium  on 
losses  of  a policy  issued  four  years  ago,  unless  it  is  restored 
again  out  of  the  next  assessment.” 

There  has  been  some  trouble  from  over-insurance  and  con- 
sequent incendiarism.  A State  Fire  Marshal  Law  is  needed. 

The  plan  of  offering  rewards  for  the  conviction  of  incen- 
diaries is  in  use  in  Pennsylvania.  It  has  prevented  the  crime 
to  a considerable  extent. 

The  following  resolution  was  passed  by  the  Board  of  Direc- 
tors of  Mr.  Miller’s  Company,  June  5,  1897,  and  ordered  to  be 
printed  with  the  Annual  Reports: 

“Resolved.  That  the  Executive  Committee  be  and  hereby 
is  authorized  to  offer,  and  the  Board  of  Directors  agree  to  pay 
a reward  for  the  detection  and  conviction  of  any  incendiary  or 
incendiaries  for  setting  fire  to  any  property  insured  in  this 
company,  said  reward  to  range  from  ten  to  two  hundred  dollars, 
at  the  discretion  of  the  said  committee,  and  to  be  based  upon 
the  amount  insured  on  the  property  so  fired.” 

“The  reward  for  the  detection  of  incediaries  is  printed  on 
every  Annual  Report,  and  on  every  assessment  notice  that  goes 
out  from  this  office,  so  that  every  insured  person  can  read  it, — 
since  June  5-97.  We  also  attach  clauses  (see  copies)  on  every 
policy  issued  limiting  the  liability  of  the  company,  compelling 
the  assured  to  carry  75  or  80  per  cent  of  the  risk  himself.  This 
and  the  incendiary  clause  are  both  good  in  their  way,  and  be- 
cause we  use  both  to  save  the  company  we  cannot  tell  which  is 
most  effective;  but  I believe  both  to  be  a good  thing  to  keep 
insurers  as  honest  as  possible.  I know  there  are  kickers  against 
the  94  and  80  per  cent  clauses,  and  these  are  the  very  ones  I 


606 


A HAND  BOOK 


do  not  trust.  People  will  make  money  out  of  an  insurance  com- 
pany, if  they  can,  and  it  can  not  always  be  prevented  even  with 
those  clauses  on  the  policies.”  These  clauses  are  printed  in  the 
article  on  over  insurance. 

In  one  case  the  reward  was  offered,  the  man  was  arrested 
but  the  case  was  lost. 

But,  it  had  a good  effect  in  all  that  country  ’round,  for  no 
suspicious  fires  occured  there  since,  so  far  as  I know.  It  acts 
as  a scare  and  in  that  way  does  some  work.  But  it  will  not 
avail  in  all  cases. 

Sometimes  I get  a man  of  the  neighborhood  of  the  loss  to 
hunt  up  evidence  to  use  at  the  trial,  and  the  one  who  had  the  loss 
does  not  know  it ; and  to  the  spy  I offer  $10  or  $20  if  he  can  find 
evidence  to  save  the  company  from  paying  part  or  all  of  the  loss, 
because  of  over-insurance. 

In  one  such  case,  the  man  had  offered  his  property  (land 
included)  for  $150  less  than  he  had  insured  on  the  house.  I 
produced  a witness  who  held  the  assured’s  letter  offering  him 
the  house  for  $300,  when  he  had  it  insured  for  $450.  The  jury 
found  against  the  company  for  $300,  and  the  interest  from  the 
time  the  loss  should  have  been  paid.  It  did  not  cost  me  $150 
to  run  the  case  through  court  and  therefore  I saved  the  com- 
pany some  money.  In  other  cases  I have  compromised  the  loss 
for  less  than  the  insurance.” 

RHODE  ISLAND. 

In  Rhode  Island  all  insurance  companies,  mutual  as  well 
as  joint  stock,  are  created  only  by  the  General  Assembly  on 
petition  thereto.  All  such  companies  work  under  the  general 
corporation  laws  of  the  state,  and  the  provisions  of  their  char- 
ters. 

The  only  special  provision  relative  to  Mutuals  is  Section 
16  of  Chapter  181,  as  follows:  “ Every  Mutual  Fire  Insurance 
Company  organized  under  the  laws  of  this  state  may  decline  to 
take  premium  notes  in  part  payment  for  insurance:  Provided, 
there  be  inserted  in  the  body  of  the  policy  issued,  a provision 
making  the  assured,  his  or  their  executors,  administrators  or 
assigns  liable  to  such  assessment  as  may  be  provided  in  such 
policy,  and  as  shall  become  necessary  in  order  to  pay  all  losses 
and  expenses  not  exceeding  twenty  times  the  amount  of  the  cash 
premium  paid.” 

Mutuals  are  under  the  control  of  the  Commissioner  of 
Insurance  and  report  to  him  as  do  the  others.  There  are  two 
joint  stock  fire  insurance  companies  in  this  state,  one  of  which, 
dates  back  to  1799,  and  there  are  two  others  in  liquidation. 


OF  MUTUAL  INSURANCE 


507 


The  Rhode  Island  mutuals  are  divided  into  two  kinds,  the 
so-called  Mill  Mutuals,  fifteen  in  number  and  the  Dwelling 
House  Mutuals,  seven  in  number,  one  of  the  latter,  the  Provi- 
dence Mutual,  having  been  organized  in  1800.  There  are  also 
eight  Massachusetts  Manufacturer’s  Mutual  Fire  Insurance 
Companies  and  eight  of  the  so  called  Massachusetts  dwelling 
house  mutuals  doing  business  in  this  state.  The  Manufacturer’s 
mutuals  should  be  treated  under  a head  by  themselves,  and  you 
will  find  a description  of  these  in  the  article  on  Massachusetts. 

I have  for  the  sake  of  convenience  divided  the  amount  at 
risk  and  the  assets  of  the  two  different  kinds  of  mutuals. 

Dwelling  House.  Manufacturer’s. 


Amount  at  risk $14,776,665  $528,409,241 

Cash  assets  1,440,972  7,197,342 


With  perhaps  the  exception  of  one  or  two  of  the  dwelling 
house  companies  in  this  state,  a flat  premium  is  charged  and  a 
dividend  paid  at  expiration  of  the  policy. 

The  dwelling  house  mutuals  in  this  state  confine  themselves 
in  their  underwriting  to  dwellings,  private  stables,  churches, 
school  houses,  and  mercantile  buildings;  there  are,  however,  two 
that  write  on  Stocks  of  Goods;  none,  however,  write  on  manu- 
facturing property,  or  so  called  special  hazards. 

Both  kinds  of  Mutuals  have,  however,  been  very  successful. 

SOUTH  DAKOTA. 

South  Dakota  has  19  mutuals,  having  at  risk  $18,168,862.07. 
The  Insurance  Laws  have  been  carefully  compiled  and  anno- 
tated. 

State  organizations  for  Mutual  fire,  lightning,  hail  and 
tornado  insurance  may  be  formed  by  not  less  than  twenty-five 
persons  owning  not  less  than  $50,000  worth  of  property.  County 
and  township  organizations  require  the  same  number  to  organ- 
ize, but  only  property  to  the  amount  of  $25,000.  Township 
organizations  are  limited  to  twenty-five  townships. 

County  and  township  organizations  may  not  insure  prop- 
erty outside  of  their  limits,  and  they  are  excluded  from  incor- 
porated cities  or  villages,  except  as  to  land  actually  used  in 
farming.  They  may  insure  detached  dwellings,  farm  buildings, 
school  houses,  churches  with  the  contents,  and  furniture  in  each 
case,  hay  or  grain  in  bin  or  stack.  County  Mutuals  may  insure 
“Live  stock  only  on  the  premises,  against  fire  and  against  light- 
ning anywhere  in  the  County  or  in  the  adjoining  county.” 
Township  organizations  may  insure  live  stock  only  on  the 
premises  or  running  at  large. 

The  state  has  a valued  policy  law,  and  an  anti  compact  law. 


508 


A HAND  BOOK 


TEXAS. 

Mutual  Insurance  is  making  good  progress  in  Texas.  Some 
years  ago  the  State  was  invaded  by  a veritable  army  of  insur- 
ance frauds  and  every  line  was  worked  energetically  and  indus- 
triously. Many  fraudulent  companies  were  organized  and  the 
business  fell  into  disrepute.  Among  the  wild  cats  were  quite  a 
number  of  Mutuals.  Their  life  was  short,  for  laws  were  soon 
passed  which  protected  the  people  from  further  imposition,  and 
the  criminals  either  fled  the  country  or  were  punished.  Fortu- 
nately, most  of  the  frauds  were  on  a small  scale. 

Mutual  insurance  is  in  its  infancy  in  Texas.  It  is  safe  to 
say  that  it  will  develop  many  fold  within  the  next  few  years. 

The  Insurance  Commissioner  of  Texas  wrote  as  follows  in 
1904: 

“We  had  no  law  in  this  State  regulating  and  supervising 
mutual  fire  insurance  companies  until  September  1,  1903. 

“ Prior  to  this  time  we  had  a great  many  irresponsible 
fake  concerns  which  operated  in  the  State  under  the  name 
‘ mutual  ’ but  the  only  mutuality  was  among  those  who  got  con- 
trol and  management  of  the  concerns,  they  putting  the  money 
in  their  own  pockets,  and  as  soon  as  they  were  filled  they  quietly 
closed  up  and  went  in  search  of  fresh  fields. 

“Since  the  taking  effect  of  the  mutual  law,  passed  by  the 
28th  Legislature,  we  have  authorized  about  15  mutual  com- 
panies. Seven  of  these  are  doing  a general  business,  and  seven 
are  strictly  local  County  affairs.  One  of  these  companies  soon 
found  it  unprofitable  and  has  gone  into  liquidation.  Three 
others,  as  I understand  it,  are  endeavoring  to  do  a general  busi- 
ness over  the  State,  and  three  more,  while  licensed  to  do  a gen- 
eral business  over  the  State,  confine  their  operations  to  their  own 
people — one  among  the  Germans,  and  another  among  the  Bohe- 
mians. 9 1 

Glen  Walker,  secretary  of  The  Millers  Mutual  Fire  Insur- 
ance Company  of  Texas,  writes  from  Fort  Worth  as  follows: 

“Your  letter  of  the  19th  inst.  has  been  received,  and  I take 
pleasure  in  writing  you  that  in  Texas  there  is  now  no  practical 
law  for  the  incorporation  of  Mutual  Fire  Insurance  Companies, 
the  present  law  having  been  so  drawn  that  while  apparently  pro- 
moting Mutual^  insurance  and  safeguarding  the  insured,  it  prac- 
tically makes  prohibitive  such  insurance. 

“Seven  companies  organized  before  the  passage  of  the  law 
are  transacting  business,  and  from  their  last  reports  to  the  Com- 
missioner, it  is  shown  that  the  receipts  for  1904  were  approxi- 


OF  MUTUAL  INSURANCE 


509 


mately  $120,000,  of  which  $85,000  is  collected  by  one  company, 
viz : the  Millers  Mutual. 

“It  might  be  added  that  before  the  passage  of  this  law  the 
State  was  covered  with  some  forty  or  fifty  so-called  Mutual 
companies,  nearly  all  of  which  were  Mutual  only  in  name,  be- 
ing wild-catters  of  the  worst  type.  The  requirement  to  report 
to  the  Insurance  Commissioner  wiped  out  thirty-five  to  forty. 

“Besides  the  above  referred  to  Mutuals,  there  are  fourteen 
County  Mutuals  organized  under  still  another  law.  These  it  is 
reported  collected  $12,000  in  1904,  and  are  said  to  be  doing  a 
small  but  good  business.” 


VERMONT. 

Vermont  has  only  three  local  companies,  i.  e.  the  Vermont 
Mutual,  the  Union  Mutual  (both  of  Montpelier,)  and  the  State 
Mutual  of  Rutland,  the  last  one,  being  quite  new  and  small  but 
on  the  same  general  principle  and  plan.  All  three  companies 
insure  all  kinds  of  insurable  property  in  this  state;  all  do  busi- 
ness on  the  premium  note  plan.  The  Vermont  Mutual,  the 
largest  of  the  three  companies,  has  had  remarkable  success  a* 
the  statistics  will  show.  Its  business  lies  principally  in  Ver- 
mont, writing  but  occasionally  on  risks  in  bordering  states.  It 
has  a local  agent  in  every  town,  and  is  familiar  and  in  touch 
with  each  of  its  risks,  and  this  is  one  of  the  causes  of  the  com- 
pany’s great  success.  Another  reason  is,  the  area  is  so  small 
that  the  officers  of  the  Company,  if  need  be,  can  personally 
visit  each  locality  where  losses  are  frequent  or  fluctuations  in 
the  value  of  property  may  demand  it. 

The  ratings  of  the  various  classes  of  hazardous  properties 
were  first  made  on  personal  judgment  and  in  the  course  of  the 
Company’s  experience  it  has  been  proven  that  the  original 
ratings  were  nearly  correct.  Village  or  city  residences  were 
rated  at  4 per  cent,  farm  risks  at  6 per  cent,  mercantile  risks 
at  25  per  cent,  the  smaller  shops  and  factories  at  40  per  cent, 
grist  mills,  creameries  and  like  hazards  at  50  per  cent,  water- 
power saw  mills  and  wood  working  plants  at  75  per  cent  and 
steam  mills  and  wood  working  plants  at  150  per  cent — these 
give  practically  the  range  of  rates. 

There  have  been  two  farm  mutuals  and  six  other  mutuals 
organized  under  the  laws  of  this  state,  and  have  transacted 
business  at  various  times.  Both  the  Farm  Mutuals  and  three 
of  the  others  have  retired,  leaving  only  three  Mutual  Fire 
Insurance  Companies  incorporated  under  the  laws  of  Vermont. 


510 


A HAND  BOOK 


The  Mutual  Companies  which  started  in  this  state  and  then 
ceased  to  do  business  confined  themselves  to  too  small  areas, 
and  under  the  larger  growth  and  business  of  the  Vermont 
Mutual  the  smaller  companies  have  been  unable  to  succeed. 

Assets  of  Vt.  Companies.  Surplus. 


State  $ 43,839.04  $ 5,384.67 

Vermont  243,845.14  171,707.27 

Union  77,148.18  7,518.84 


$364,832.30  $184,610.78 

There  are  ten  mutual  companies  from  Massachusetts  and 
Rhode  Island  doing  business  in  this  state  and  in  1904,  the 
amount  at  risk  written  was  $3,609,899  for  which  they  received 
in  premiums  $67,206.07,  paying  out  in  losses  $26,589.59  at  a 
loss  ratio  of  33.28  per  cent. 

WASHINGTON. 

Washington  is  one  of  the  newer  states,  but  she  has  a good 
mutual  system. 

She  has  11  mutuals  with  $16,798,693  at  risk,  and  a total  of 
assets  of  $756,620.30.  This  shows  a material  advance  during 
the  year. 

The  laws  of  the  state  are  fair. 

Any  ten  or  more  persons,  residents  of  this  state,  who  may 
desire  to  form  a company  or  association  for  the  purpose  of 
mutual  protection  of  the  members  thereof  against  loss  by  fire, 
may  do  so. 

Mutual  Marine  and  Fire  Companies  are  provided  for  and 
also  live  stock  mutuals. 

If  the  Insurance  Commissioner  of  Washington  does  his 
duty  in  making  examinations  there  will  be  no  bankrupt  insur- 
ance companies  in  that  state.  Weak  companies  will  be  forced 
to  close  up  before  their  losses  become  so  great  that  they  cannot 
pay  them. 

Washington  has  an  excellent  Fire  Marshal  Law. 

THE  FACTORY  MUTUALS. 

F.  J.  Martin,  of  Seattle,  writes  as  follows: 

“In  answer  to  your  inquiry  concerning  the  National  Asso- 
ciation of  Factory  Mutual  Insurance  Companies  will  state,  that 
this  is  an  association  of  mutual  companies,  the  association  be- 
ing formed  during  the  early  part  of  1905  at  the  solicitation  of 


OF  MUTUAL  INSURANCE 


511 


D.  M.  Parry,  President  of  the  National  Association  of  Manufac- 
turers and  other  manufacturers  closely  allied  with  that  organi- 
zation. 

1 1 The  Association  has  an  Inspection  Department  in  charge  of 
S.  M.  Timberlake,  an  experienced  insurance  engineer  and  locat- 
ed at  Indianapolis,  Ind.  The  object  of  the  Association  is  to 
insurefthe  better  class  of  equipped  manufacturing  risks,  but  yet 
those  that  are  not  quite  up  to  the  high  standard  required  by  the 
Senior  Factory  Mutuals  of  New  England. 

“The  companies  selected  for  the  organization  were  The 
Indiana  Millers  Mutual  Fire  Insurance  Co.,  Indianapolis,  Ind.; 
The  American  Manufacturers  Mutual  Fire  Insurance  Co.,  In- 
dianapolis, Ind.;  The  American  Guaranty  Fund  Mutual  Fire 
Insurance  Co.,  St.  Louis,  Mo.;  The  Central  Manufacturers 
Mutual  Insurance  Co.,  Van  Wert,  Ohio;  The  Western  Millers 
Mutual  Fire  Insurance  Co.,  Kansas  City,  Mo.,  and  our  own  com- 
pany. 

“During  1905  these  companies  paid  their  policy  holders  a 
dividend  of  25  per  cent,  but  on  February  1st,  1906,  it  was  in- 
creased to  30  per  cent.” 


WISCONSIN. 

No  better  account  of  the  Mutuals  of  Wisconsin  can  be 
given  than  the  following,  taken  from  the  report  of  Insurance 
Commissioner  Host,  for  1904. 

The  number  of  companies  doing  business  in  this  state,  and 


reporting  to  this  department,  was  as  follows: 

Mutual  town  insurance  companies 199 

City  and  village  Mutual  companies 37 

Mutual  Church  Insurance  Companies  4 

Mutual  Hail  Insurance  Companies 7 

Retail  Lumber  Dealers  Mutuals 1 

The  following  table  is  an  abstract  from  the  reports  of  these 
companies  showing  the  amount  at  risk  December  31,  1903: 

City  and  Village  Mutuals $ 32,471,068 

Town  Mutuals  246,902,622 

Church  Mutuals  4,210,152 

Lumber  Dealers  Mutual 494,125 

Mutual  Hail  and  Cyclone 4,081,678 


Total  $293,159,645 


In  no  form  of  insurance  do  we  find  the  old  fashioned  the- 
ory of  mutuality  so  faithfully  adhered  to,  and  in  no  class  of 


612 


A HAND  BOOK 


insurance  do  the  members  receive  more  complete  and  fuller 
returns  for  the  share  of  the  responsibility  which  each  assumes 
than  they  do  in  a Mutual  Fire  Insurance  Company. 

The  successful  Mutual  company  must  confine  itself,  either 
to  a certain  class  of  risks,  or  to  a restricted  locality,  so  that  the 
most  important  factor — moral  hazard — may  be  eliminated. 

Forty-four  years  of  experience  with  local  Mutual  fire  insur- 
ance has  proven  the  wisdom  of  the  restrictions  and  limitations 
which  the  law  has  placed  upon  these  companies. 

The  limitations  as  to  the  character  of  the  risk  and  exposure, 
the  amount  of  insurance,  and  assessment  liability  of  the  mem- 
ber, together  with  the  restriction  as  to  territory — eliminating 
the  moral  hazard  which  makes  up  so  large  a percentage  of  the 
cost  of  stock  companies — have  made  possible  the  success  of  this 
class  of  companies. 

Kept  within  the  meaning  and  purpose  of  Mutuality,  and  the 
well  tried  limitations  and  restrictions  adhered  to,  with  the 
economy  and  care  which  has  characterized  the  management  of 
these  companies,  there  never  need  be  a failure,  and  the  protec- 
tion afforded  will  always  be  the  best. 


Press  of  Daily  Republican,  McPherson. 


